SMRT

[Bibi]

I thought the risk to smrt might be delisting? If its done at average price, then investors might not get good returns. This risk will increase if opp parties gain more seats.

[AlphaQuant]

I thought the risk to smrt might be delisting? If its done at average price, then investors might not get good returns. This risk will increase if opp parties gain more seats.

IIRC, one of the prime drivers for the privatisation spree was the argument that we need to pay top leaders top money to run these assets well. The phenomenon was a move of people from public to private sectors - and the fear from the G was that we will have no good blokes to run SMRT/Changi etc. Privatise these and we can pay them competitive wages and retain them.

so i doubt smrt is going to delist anytime soon (unless the G hikes up the wages of the public sector massively). prob see some effort to align exco compensation with public service i/o pure profit.

but then you never know since it's so politically sensitive, so expect the unexpected...

[specuvestor]

^^ firstly they were making tons of money AFTER taking into account depreciation

Well, if ROA of 10% means tons of money, then lots of other companies are also making more than tons of money

PPM of SMRT are operating asset, means its value drop with age. Depreciation is a real expense and should be accounted.

Actually 10% is nothing to sneeze at. Not many companies in the Industrial or transport sector have that kind of ROA on a CONSISTENT basis. In fact if your portfolio does 10% CAGR, you would double your money in 7 years, not exactly shabby. Probably also why Buffett also like to use 10% coupon for his preference share plays.

These are ROA extracted from Bloomberg:
SMRT(SPORE) MRTC(HK) CD
2003 4.08 4.37 5.08
2004 5.60 6.26 7.3
2005 8.59 7.67 6.9
2006 7.53 6.63 7.96
2007 9.80 11.00 6.97
2008 10.65 5.26 5.98
2009 11.07 5.74 5.89
2010 10.56 6.73 5.40
2011 10.10 7.75 5.25
2012 7.13 6.69 5.28

So we can objectively see the "tonnes of money" before the current backlash from the public, and yet still higher than pre 2004.

And yes depreciation is part of operating expense of the company and shareholders should pay for. I don't see the logic of why public should pay for their operating expense, nor pay for wall street banks' bad debts.

---

I thought the risk to smrt might be delisting? If its done at average price, then investors might not get good returns. This risk will increase if opp parties gain more seats.

Yes the risk with SMRT is political. As with all public goods, mixing them with private interests is inherently a bad idea because the 2 objectives are at odds. Under the Goh era of Singapore Inc ideology, it became a good investment. But with government turning back to more socialist measures, it may not be a good idea.

Nonetheless IMHO public services should never be listed in the first place, including regulator like SGX.

[CityFarmer]

Actually 10% is nothing to sneeze at. Not many companies in the Industrial or transport sector have that kind of ROA on a CONSISTENT basis. In fact if your portfolio does 10% CAGR, you would double your money in 7 years, not exactly shabby. Probably also why Buffett also like to use 10% coupon for his preference share plays.

These are ROA extracted from Bloomberg:
SMRT(SPORE) MRTC(HK) CD
2003 4.08 4.37 5.08
2004 5.60 6.26 7.3
2005 8.59 7.67 6.9
2006 7.53 6.63 7.96
2007 9.80 11.00 6.97
2008 10.65 5.26 5.98
2009 11.07 5.74 5.89
2010 10.56 6.73 5.40
2011 10.10 7.75 5.25
2012 7.13 6.69 5.28

So we can objectively see the "tonnes of money" before the current backlash from the public, and yet still higher than pre 2004.

And yes depreciation is part of operating expense of the company and shareholders should pay for. I don't see the logic of why public should pay for their operating expense, nor pay for wall street banks' bad debts.

Yes, ROA of 10% is respectable, but not qualify for "tons of money" IMO. A simple stock search for SGX with ROA of 10%, gives a total of 138 listed companies, although i have to admit that i am not able to search with criteria of sustainable 5 years ROA.

The logic of co-funding of assets for public transport are at least the followings IMO
- to allow bus operator continue to operate non-profitable routes in remote locations or new estates.
- to allow train operator provides service to losing route in early stage e.g. CCL at early stage.

[Temperament]

^^ firstly they were making tons of money AFTER taking into account depreciation

Well, if ROA of 10% means tons of money, then lots of other companies are also making more than tons of money

PPM of SMRT are operating asset, means its value drop with age. Depreciation is a real expense and should be accounted.

Actually 10% is nothing to sneeze at. Not many companies in the Industrial or transport sector have that kind of ROA on a CONSISTENT basis. In fact if your portfolio does 10% CAGR, you would double your money in 7 years, not exactly shabby. Probably also why Buffett also like to use 10% coupon for his preference share plays.

These are ROA extracted from Bloomberg:
SMRT(SPORE) MRTC(HK) CD
2003 4.08 4.37 5.08
2004 5.60 6.26 7.3
2005 8.59 7.67 6.9
2006 7.53 6.63 7.96
2007 9.80 11.00 6.97
2008 10.65 5.26 5.98
2009 11.07 5.74 5.89
2010 10.56 6.73 5.40
2011 10.10 7.75 5.25
2012 7.13 6.69 5.28

So we can objectively see the "tonnes of money" before the current backlash from the public, and yet still higher than pre 2004.

And yes depreciation is part of operating expense of the company and shareholders should pay for. I don't see the logic of why public should pay for their operating expense, nor pay for wall street banks' bad debts.

---

I thought the risk to smrt might be delisting? If its done at average price, then investors might not get good returns. This risk will increase if opp parties gain more seats.

Yes the risk with SMRT is political. As with all public goods, mixing them with private interests is inherently a bad idea because the 2 objectives are at odds. Under the Goh era of Singapore Inc ideology, it became a good investment. But with government turning back to more socialist measures, it may not be a good idea.

Nonetheless IMHO public services should never be listed in the first place, including regulator like SGX.

Well put as usual. In china, even Tsingtao beer is subsidized. Not to mentioned their railway. In Singapore squeeze as much as the people can take? No?

[specuvestor]

Actually 10% is nothing to sneeze at. Not many companies in the Industrial or transport sector have that kind of ROA on a CONSISTENT basis. In fact if your portfolio does 10% CAGR, you would double your money in 7 years, not exactly shabby. Probably also why Buffett also like to use 10% coupon for his preference share plays.

These are ROA extracted from Bloomberg:
SMRT(SPORE) MRTC(HK) CD
2003 4.08 4.37 5.08
2004 5.60 6.26 7.3
2005 8.59 7.67 6.9
2006 7.53 6.63 7.96
2007 9.80 11.00 6.97
2008 10.65 5.26 5.98
2009 11.07 5.74 5.89
2010 10.56 6.73 5.40
2011 10.10 7.75 5.25
2012 7.13 6.69 5.28

So we can objectively see the "tonnes of money" before the current backlash from the public, and yet still higher than pre 2004.

And yes depreciation is part of operating expense of the company and shareholders should pay for. I don't see the logic of why public should pay for their operating expense, nor pay for wall street banks' bad debts.

Yes, ROA of 10% is respectable, but not qualify for "tons of money" IMO. A simple stock search for SGX with ROA of 10%, gives a total of 138 listed companies, although i have to admit that i am not able to search with criteria of sustainable 5 years ROA.

The logic of co-funding of assets for public transport are at least the followings IMO
- to allow bus operator continue to operate non-profitable routes in remote locations or new estates.
- to allow train operator provides service to losing route in early stage e.g. CCL at early stage.

In 2009 SMRT has $163m net income and $343m EBITDA, that's the ton I'm talking about since it is about half of COE income for the govt.

Yeah there are many lumpy ROAs especially for those in the EPC type of business. Maybe you can list out some that looks remotely stable business ie Buffett type of business and we can look deeper, for my benefit also Even SIA which is recognised as the star in the airline business which is 1) highly supported by the govt and 2) highly commercial, only has ROA of 8.63% in 2007 and 0.91% in 2010

And yes the universal coverage is a main contention of pte enterprise vs public enterprise. Another reason why public services should not be listed to serve 2 masters. But I am not against corporatising within the public sector umbrella, just as I am not against reasonable salary peg of ministers. Public services, including military defence, are inherently LOSS MAKING, as they are funded by tax income. A lot of people are being brainwashed in the Singapore Inc era that these services should be profitable. Put in another way, if public services are profitable, why do we need to be taxed?

On the other hand early losses in viable projects are not rare in corporate finance or collateralised project financing... these are done at municipal levels all the time.

[brattzz]

Personally, i feel that SMRT will be better run as a PTE entity, rather than a public entity, why?
simply because good people need to be paid good salary to do a good job, simple as that.

SMRT's case for the past years is, incompetent people being overpaid, and doing a 1/2 past six job.

:O

[specuvestor]

^^ yup corporatisation is not an issue... the issue is when your KPI is confused They are not incompetent... they just think that share price and hence appealing to shareholders are more important than their clients, ie commuters or the public at large.

Frankly I don't understand why it is so difficult to understand why the Singapore transport sector is weakening now when the focus is on profitability rather than quality. On the other extreme we have military people jettisoned into TLC who has no understanding of long term business management except short term bottom lines. Both are quality issues and incorrect KPI.

I would think it should be easier to understand the quality of a business in a Buffet forum, focusing on moat ie comparative advantage, management expertise and foresight for the long term, and value add above what they cost. Otherwise everyone seemed to think that running an on going business is like a "short term hedge fund" focus on quarterly results.

[CityFarmer]

In 2009 SMRT has $163m net income and $343m EBITDA, that's the ton I'm talking about since it is about half of COE income for the govt.

Well, it is a matter of definition and opinion. IMO, Genting's yearly profit in billion dollar started from the very 1st year operation is ton of money

Yeah there are many lumpy ROAs especially for those in the EPC type of business. Maybe you can list out some that looks remotely stable business ie Buffett type of business and we can look deeper, for my benefit also Even SIA which is recognised as the star in the airline business which is 1) highly supported by the govt and 2) highly commercial, only has ROA of 8.63% in 2007 and 0.91% in 2010

I looked into the list, and do a quick job just extracting out few which are familiar names here
- DairyFarm
- Boustead
- VICOM

There are all with ROA around or more than 10% for 5 years.

[specuvestor]

In 2009 SMRT has $163m net income and $343m EBITDA, that's the ton I'm talking about since it is about half of COE income for the govt.

Well, it is a matter of definition and opinion. IMO, Genting's yearly profit in billion dollar started from the very 1st year operation is ton of money

Yeah there are many lumpy ROAs especially for those in the EPC type of business. Maybe you can list out some that looks remotely stable business ie Buffett type of business and we can look deeper, for my benefit also Even SIA which is recognised as the star in the airline business which is 1) highly supported by the govt and 2) highly commercial, only has ROA of 8.63% in 2007 and 0.91% in 2010

I looked into the list, and do a quick job just extracting out few which are familiar names here
- DairyFarm
- Boustead
- VICOM

There are all with ROA around or more than 10% for 5 years.

yup but Genting is neither quasi-govt with a public mission nor 10% ROA ie it needs to have more assets to generate those profits.

Agree with DFI. Sheng Siong is impressive as well, but they are not in the same sector. Vicom is a great example of being in the same sector but benefits differently. I'm not so sure of Boustead sustainability.

Nonetheless through your quick job do you think 10% ROA is rare in the transport/ Industrial sector, or you think it is equitable for SMRT to get 10% ROA vs the industry?