SBS Transit

[Nick]

SBS has been largely operating buses at a loss in recent years due to escalating costs and inability to raise fare prices. This is not sustainable in the long run hence the shift towards a gross contracting model where the operator is paid a fee to operate the route and cover the operating cost. In other words, under the new model, there is a greater likelihood of an operator running bus routes with a profit. Naturally, the assumption is that the tender price is financially sound!

This is a major difference between the two models hence it is not accurate to simply extrapolate the current financial year results. Even with the reduction in market share, the shift from being loss making with a larger market share towards running profitable routes with a smaller market share should lead to an improvement in results. Again, many assumptions have to be made at this stage since there isn't much concrete details to work with yet.

Hence, in my earlier post, I alluded that what is truly interesting is not how much money the incumbents are going to receive, but how will their P&L statement shape up in 2H 2016 onward. Honestly, nobody can give a straight answer for now since no details have been released. One can only speculate and run various models with different assumptions and see what pops up. 

(Vested)

[lanoitar]

One important point to note for many investors/observers is who will take the retail revenue.

Source: http://www.todayonline.com/singapore/maj...s-services

Revenues from fares will go to the Government, while operators will pocket the non-fare revenues from advertising on buses or commercial rentals at interchanges, for example, on top of the amount it is paid by the Government to run the services.

problem is SBS lumps rental together with bus operations in its annual reports

The breakdown is given in AR13 (and before).

[Drizzt]

if you look at the past sbs transit result from 2000 to now, you will see the trend that it was a great yielder at 5%.

then the capex just start killing it.

this stock was at 3 bucks plus 10 years ago, and that was before the population ramp up.

what we are seeing is the problem that is killing it being taken away from it.

these past few years result is a very bad judge, because the model of the government contracting model have changed.

[valuebuddies]

Well i have a colleague who has been complaining that SBS or SMRT, being public transport operators, should not be profit making. He is in his 50ish and do not invest in stock market, but it seems to me that the profit figures of these public services company should not be too "eyes catching" to avoid public criticism, especially with the increase trend in train failures over the past few years.

[level13]

Well i have a colleague who has been complaining that SBS or SMRT, being public transport operators, should not be profit making. He is in his 50ish and do not invest in stock market, but it seems to me that the profit figures of these public services company should not be too "eyes catching" to avoid public criticism, especially with the increase trend in train failures over the past few years.

Pls tell your friend to do himself a favour and read up the past annual reports of SMRT and SBS.

Their transport operations have been in the red for the longest time...........

[thefarside]

Hence, in my earlier post, I alluded that what is truly interesting is not how much money the incumbents are going to receive, but how will their P&L statement shape up in 2H 2016 onward. Honestly, nobody can give a straight answer for now since no details have been released. One can only speculate and run various models with different assumptions and see what pops up. 

Two tenders have already been conducted by the government and the results made known to the public. Although there are still many assumptions to be made, chiefly being whether the government will allow the incumbents the same margins as the new operators, the data (including past operational data for existing PTOs) is out there for those who are willing to look.

But this is not an easy one - and it should not be.

Revenues from fares will go to the Government, while operators will pocket the non-fare revenues from advertising on buses or commercial rentals at interchanges, for example, on top of the amount it is paid by the Government to run the services.

Unknown is whether there will be a fixed charge by the government - not unlike leasing of assets - for the use of these assets to generate advertising / rental revenue. But I think this should be the cream, rather than the bread.

[Drizzt]

Well i have a colleague who has been complaining that SBS or SMRT, being public transport operators, should not be profit making. He is in his 50ish and do not invest in stock market, but it seems to me that the profit figures of these public services company should not be too "eyes catching" to avoid public criticism, especially with the increase trend in train failures over the past few years.

he is not wrong to think that way. i was thinking that way as well.

here is another point. if there is no operating margins to be made, why would these established uk and aust company come in?

[CY09]

In UK, some train operators are 'stat boards' e.g. the tube has the statutory function of lta- rails and all their profits are channeled to maintaining the network and purchasing carriages

[valuebuddies]

As the general public's anticipation, the government should ensure a first-world standards public transportation system which is affordable or cheap. One way to achieve this is that the government should fill in the gap by way of incentive or subsidies, which is what we are seeing now.

With the foreign competitions on bidding for the service routes, government's involvements and regulatory risks, increase public criticism, ageing of the train infrastructure, rising trend of global terrorism; I would choose to stay away from these "supposed defensive" counters for now.

[Nick]

In UK, some train operators are 'stat boards' e.g. the tube has the statutory function of lta- rails and all their profits are channeled to maintaining the network and purchasing carriages

The GCM model which are we are adopting is similar to the models used in London. Operators like Go Ahead (which won the 2nd tender) are generating 9% operating margins in London bus operations in recent years. Assuming similar margins in Singapore, they could be making an operating profit of $8.9 million p.a from service fees collected from LTA. A sharp contrast to the current model where our local PTOs are largely generating losses. That's why I feel the GCM is a lot more sustainable in the long run - Government collects the fare and plan the routes while PTOs focus on service since they are remunerated based on that. Consumers benefit from the heightened competition (especially after 2021) and hence better service. The incumbents would favour this model since they would no longer have to invest in capex and their loss-making business should turn profitable under the contracting model. Granted, they will face substantial competition after 2021 so they will need to improve their service standards and even talent management to retain their workforce.

(Vested)