SBS Transit

[greentea]

http://businesstimes.com.sg/transport/ptc-agrees-to-raise-public-bus-and-train-fares-by-28-but-11-million-commuters-expected-not

"The fare hike will result in a total fare revenue increase of S$48.5 million a year for the two public transport operators - S$21.9 million for SBS Transit and S$26.6 million for SMRT.

But the PTC also decided that the two transport operators will have to channel a larger chunk - S$13.5 million - of the additional fare revenue to the Public Transport Fund, which goes to transport vouchers for the needy. This is higher than their total contribution of S$11.5 million last year."

[Nick]

Reduction sees S$36m drop in fare revenue a year for SBS, SMRT

http://www.todayonline.com/singapore/red...r-sbs-smrt

This will impact their loss-making train operations though the impact on the bus operations will be minimal with the shift towards an asset-light, fixed margin business after 31 Aug 2016.

(Vested)

[Nick]

British operator Go-Ahead Group wins second Government bus contract

http://www.straitstimes.com/singapore/tr...s-contract

Contract No 2 is out. One more tender to go.

For SBS, the next few milestones to watch are -

1) Pricing of the new contracts (estimate 6-7) to run from Sept 2016 onward.

2) Pricing of the operating assets to be transferred to LTA.

3) Opening of DTL2 at the end of the year.

(Vested)

[Nick]

A comprehensive report on the SG Land Transport Sector Outlook for 2016 - http://rhbosk.ap.bdvision.ipreo.com/NSig...8767270639

While there is a lot of speculation on the size of the cash proceeds from the likely divestment of the bus fleet to LTA in the coming months, it will also be interesting to see how the P&L would shape up under the new business model.

(Vested)

[Nick]

Both SBS and SMRT has been issued trading queries by SGX. SBS is up 5.7% while SMRT is up 4.7%.

(Vested)

[opmi]

^^ must be your posts lah...hahah...

[Nick]

LTA must be ready to take over MRT operations: Khaw Boon Wan

http://www.straitstimes.com/singapore/tr...t-ops-khaw

Haha opmi! Quite unlikely RHB report is that powerful since it has been saying this for months.

[money]

Allow me to put forward my views but vested shareholders may be unhappy but please feel free to point out my shortsightedness.

I am going to make some assumptions to keep things simple.

In the latest financial statement, Sbs transit has a NAV of 1.07. Assuming the govt buys back all buses & vehicles at its cost less depreciation, Sbs pays down all its bank loan, then assuming the directors are super generous, they pay out 70 cents as special dividend. What a windfall for shareholders but who knows it is possible because all analysts are now supporting this asset light model so the company doesnt have to hold much capital anymore.

Now with most of the cash paid out, we have to value Sbs according to its earnings now. For the past 9 mths 2014 & 2015, it earned 4.54 cents and 5.28 cents respectively. I will annualise the 2015 earnings so that it works out to be around 7 cents. This works out to be profits of 21-22m per year.

On the basis of the asset light model, the government will no doubt allow the operators to earn a profit but i dont think it will be so substantial that it is going to exceed 7 cents per year. Why do i say that? The govt will argue that since sbs transit does not have to lay out any capital now (or rather far less capital now), the risks it is taking is obviously lesser and deserves less profits. And do not forget that many of these but routes will be eventually put up for tenders and profits will be pushed downwards but we are not going to dwell into that at the moment.

Let's assume that the govt is kind enough to grant sbs transit 21-22m profits per year, that works out to be 7 cents per year. Since it has gone asset light and does not need to retain capital so sbs transit will pay out 7 cents per year as dividend. Shareholders will once again be happy and smile in their dreams. (actually for a long time, sbs has not paid out 7 cents per year but we are going to be optimistic to keep things simple). Since this is a defensive industry like the telcos & st engineering, i will assuming that mr market will value it as a 6% yield stock. So the stock should be priced around 116 cents.

70 cents special dividend + 116 cents valuation should work out to be around 186 cents today. but last friday the stock was priced around 202 cents.

In my humble opinion, there is no margin of safety and the stock has been overhyped. I understand that this is a public forum so if the speculators who are going to pump and dump read this post, they will most likely pump the stock higher to make me feel stupid but time will tell if i am partially wrong or very wrong.

Thank you for taking the precious time to read this long post. i always think that someone has to play the bad guy so that the man on the street will not naively believe what he reads in the press or newspapers and get too optimistic. Haha

[CY09]

Hi Money,

Good effort in trying to wrap a valuation on SBS should Govt buy over the assets. One important point to note for many investors/observers is who will take the retail revenue. If the govt is going to own all the rail/bus assets, will the operators be entitled to the revenue? This is because as seen in SMRT case, the rental segment is a major contributor to SMRT's profit (80%). I believe this holds true to SBS as well*, albeit at a smaller rate; problem is SBS lumps rental together with bus operations in its annual reports.

As the govt will own the assets in such an agreement, it is important to note how much retail revenue will go to these operators. It is highly unlikely SBS will obtain 7 cents a year profits while being merely operators.

* Heard rental for one newspaper kiosk at bus interchange is ~$8k per month.

[CityFarmer]

Hi Money,

Good effort in trying to wrap a valuation on SBS should Govt buy over the assets. One important point to note for many investors/observers is who will take the retail revenue. If the govt is going to own all the rail/bus assets, will the operators be entitled to the revenue? This is because as seen in SMRT case, the rental segment is a major contributor to SMRT's profit (80%). I believe this holds true to SBS as well*, albeit at a smaller rate; problem is SBS lumps rental together with bus operations in its annual reports.

As the govt will own the assets in such an agreement, it is important to note how much retail revenue will go to these operators. It is highly unlikely SBS will obtain 7 cents a year profits while being merely operators.

* Heard rental for one newspaper kiosk at bus interchange is ~$8k per month.

IMO, LTA is unlikely to take over the commercial part of the operation. The rental biz should remain with the operators. The final model should be similar as the current bus contractual model.

I agree that, SBS might not be able to sustain the current profitability, not due to the lacking of rental biz, but market competition. Both existing bus operator has lost the last few bus contracts' bidding. Many are ready to compete, on both bus/rail operation, once readied.

(not vested in both SMRT, and SBST)