SBS Transit

[pianist]

SBS Transit has on 26 October 2010 issued S$100 Million 1.95% Fixed Rate Notes due 2015. The Notes are the first series issued under the S$250 Million Multicurrency Medium Term Note Programme established by the Company on 24 May 2010.

i am just wondering as a shareholder of SBS Transit, what would be the possible implications? Is this a good deal for SBS to raise cash using bond issuance?

[piggo]

what are they going to do with the extra money?

[Drizzt]

the company's cashflow is really out of wack. its recent capex is very high compare to historical. its not becoming very good free cashflow wise.

[pianist]

are u sure their cashflow is out of wack? recently they bought new volvo buses are comply to some european emission standard?

[pianist]

sbs transit reached a $2.03 yesterday, it been quite sometime since it was last over $2 mark..

[Nick]

Comfort shareholders will be happy hehe

[namaste]

How much of an impact will the rising oil prices hit the bottomline of SBS Transit ? (Given that its' selling price is regulated)

This comment is also partly triggered by the announcement of SIA's announcement of additional fuel surcharge starting 27th Jan 2010 due to increasing fuel prices. But as far as i can remember; there is no such thing for public bus transport. So its' ability to pass on increasing cost in an inflationary period is non-existent.

I see pressure on margin during this fiscal year.

[Jon-san]

How much of an impact will the rising oil prices hit the bottomline of SBS Transit ? (Given that its' selling price is regulated)

This comment is also partly triggered by the announcement of SIA's announcement of additional fuel surcharge starting 27th Jan 2010 due to increasing fuel prices. But as far as i can remember; there is no such thing for public bus transport. So its' ability to pass on increasing cost in an inflationary period is non-existent.

I see pressure on margin during this fiscal year.

Don't worry. They'll just pass on the cost to the consumers. All they need to do is petition the PTC, like they did the last round. Funny thing is, when oil hit the all-time high previously, transport fares were increased, however, when oil fell back down again, I didn't see fares reverting back to the mean. Go figure!

[namaste]

Good to hear that prices were revised upwards during the last oil price peak.

Of course, it is not good as a consumer as the prices did not come down. Usually, when prices of public goods are adjusted upwards, there is some form of rebate in the short term (e.g. GST rebate) to ease consumers into new higher prices. Not sure if this were done during the last round of price increase.

[namaste]

Did a check on SBS's cost drivers and came up with the following ranking/percentages based on 9M 2010 results.

(percentage expressed as cost divided by revenue)

Staff Cost @ 40.8%
Fuel & Electricity @ 18.3% (already gone up 7.4% wrt 9M 2009)
Repair & Maintenance @ 11.9%
Other cost @ 8.3%
Depreciation expense @ 6.5% (up 20% wrt 9M 2009)
Premises Cost @ 4.6%

With the Singapore economy at close to full employment, it will drive up staff cost. Hence, i expect staff cost to increase in 2011.

In the short term (1H2011), cost will go up in multiple fronts (staff cost, fuel & electricity, depreciation). Therefore, margin will be hit.

But in given "some time" to petition to the PTC (as Jon-San has earlier pointed out) prices may be adjusted upwards. I do not have the expertise nor experience to estimate the time line. Point here is that margin will be hit first before prices are allow to be increased.