SMRT

[shanrui_91]

SBS has a fleet size of 3015 and a daily ridership of 2.5m.
SMRT has a fleet size of 800+ and daily ridership of 888000.

THerefore, it seemed quite unlikely that SBS actually enjoys a higher load factor on its buses as compared to SMRT.

Both transport operators have suffered quite badly - SBS's bus turning from $14m operating profit to $6m operating loss which is a reversal of $20m in operating profit. It's not right to say that SBS is not as affected by the rise in fuel cost as compared to SMRT.

However, SBS's bus has always had higher profit margin compared to SMRT's bus though SBS's bus driver earns 10% more than SMRT previously. Similarly, SBS's rail profit margin always trails that of SMRT. This is because of the economics of scale that both parties have over their respective strength in bus and rail. Therefore, it makes no sense to have competition within bus and rail as we have seen from the results, the one with lower scale always lose out by a 5% profit margin.

[KopiKat]

SBS has a fleet size of 3015 and a daily ridership of 2.5m.
SMRT has a fleet size of 800+ and daily ridership of 888000.

The figures above would suggest that SMRT's buses are enjoying a better Ridership/Bus. I went to check both their latest AR (but SMRT AR lags SBS figures by 9mths).

Figures for SBS is correct but for SMRT,
Buses = >1020 ; Daily Ridership = ~854k

In this case, the Ridership/Bus is now more similar for both.

However, SBS's bus has always had higher profit margin compared to SMRT's bus though SBS's bus driver earns 10% more than SMRT previously. Similarly, SBS's rail profit margin always trails that of SMRT. This is because of the economics of scale that both parties have over their respective strength in bus and rail. Therefore, it makes no sense to have competition within bus and rail as we have seen from the results, the one with lower scale always lose out by a 5% profit margin.

Ok, for lack of a better reason with supporting facts and figures, I buy your argument that SBS is enjoying better economies scale of operations ie. their Fixed Cost is better spread out across a larger fleet size and thus the impact of rising Variable Cost (Oil, Salary,..) resulted in their having a smaller loss as compared to SMRT bus ops.

[shanrui_91]

Ok, for lack of a better reason with supporting facts and figures, I buy your argument that SBS is enjoying better economies scale of operations ie. their Fixed Cost is better spread out across a larger fleet size and thus the impact of rising Variable Cost (Oil, Salary,..) resulted in their having a smaller loss as compared to SMRT bus ops.

You are right, cos i can't find a better reason than scale of operation. From the surface, this seemed to be the explanation as the difference in profit margin has persisted for the past few years. Some other plausible reason might be that SBS has the support of Comfortdelgro maybe in terms of servicing and maintanace of buses just like how SIA engineering has the support of SIA when it comes to insurance and renting of space.

All we know for now is that diesel occupies 23% of revenue for bus and electricity is 18% of of revenue for rail for SMRT. Too bad SBS does not releases similar figures. But this does shows that bus has higher variable cost as compared to SMRT even after a 40% increases in electricity cost vs 25% increases in diesel cost.

Since SMRT operates rail more efficiently while SBS operates buses more efficiently (for some reason), should competition then be encouraged within both rail and bus or should the bus competes with the rail instead?

[weijian]

hi Shanrui_91,
Thanks for digging into the numbers. I have digged into the same numbers - In terms of 'passenger per bus' or more importantly 'revenue per bus', SMRT is actually higher than SBSTransit - This corrects my perceived misconception on the load factor..Thanks for pointing it out!

I tried looking into your proposal - With salaries and diesel costs making the bulk of the operating expenses (~60%), it is hard to see that 'economies of scale' coming from fixed costs. Nonetheless, despite having 3x more buses, SBSTransit's depreciation is only 2x more than SMRT's (SBSTransit FY2010=34mil, SMRT Bus FY2011=18mil), this might lend argument to the 'economies of scale' proposal.

This might be a good question to ask Mgt in the coming AGM..

[Contrarian]

> Since SMRT operates rail more efficiently while SBS operates buses
> more efficiently (for some reason), should competition then be
> encouraged within both rail and bus or should the bus competes
> with the rail instead?

They are allowing it... parallel bus alongside SMRT trains soon. Why? Because the next set of trains will come in 3 years, the signalling system will be ready only during 14, and there is no more train capacity for more people...

[CityFarmer]

Kim Eng report for reference

http://www.kimengresearch.com.sg/Downloa..._02052.pdf

[chaosdiablo]

Kim Eng report for reference

http://www.kimengresearch.com.sg/Downloa..._02052.pdf

CIMB report : https://brokingrfs.cimb.com/0qNBxlbxUjRZ...lw25j0.pdf


Watch out for falling dividends
SMRT faces intensifying headwinds from an ongoing inquiry into its
service disruptions. Asset renewal will call for higher capex, while
mandates for more stringent repairs and maintenance will elevate its
cost structure permanently, eating into profits.

FY12 core misses expectations at 85% of our FY12 and consensus due to goodwill impairment for its bus business. We cut our FY13-14 EPS by 7-8% to incorporate higher opex. Our DCF target (WACC: 6.6%) falls accordingly. Maintain Underperform.

Cash cow no more What surprised us was a reduction in
dividends this quarter, reaffirming our suspicion that SMRT will need to lower its payouts. FY12 dividends totalled 7.45cts, below our 8.5ct
forecast, which was culled from management’s earlier guidance of
maintaining last year’s absolute payout. We have pre-emptively cut
our payout assumptions to 60% of PATMI, lowering forward yields to
less than 4%.

With a planned hike in capex for fleet expansion and asset renewal, SMRT could slip into net debt in FY13.

Capex will be funded by its MTN programme and debt.
Cost pressure persists Cashflow strains aside, SMRT continued to contend with margin erosion in 4Q12. Higher repair/ maintenance costs and costlier energy erased the benefits of revenue growth
from higher ridership. A S$21.7m goodwill impairment for its bus
business further ate into profits, causing a 10.4%-pt slump in EBIT
margins. We expect a structural increase in SMRT’s cost structure
from stricter repair and maintenance mandates.

Poor prospects Plagued by margin erosion and cashflow strains, we see no reason to own this stock. Further, dividend yields are no longer attractive. Switch to ComfortDelGro for exposure to
Singapore’s land transport sector.

[shanrui_91]

it should dive down more, given so many negative reports.

I believe the $20m impairment of goodwill is a deliberate "big bath" being taken for the following reasons:

1)Push the PTC to allow them to raise fare
2)Push the LTA to split higher cost with them
3)The impairment of goodwill does not have an impact on their cash, it is just mere accounting loss. Can also help to boost their roe slightly

[wsreader]

quote ".....FY12 dividends totalled 7.45cts, below our 8.5ct forecast, which was culled from management’s earlier guidance of maintaining last year’s absolute payout......"

There is a change in management from the one that made the guidance, shareholders should not have hold on tightly to the guidance.

[Contrarian]

SMRT mandate is to OPERATE the train infrastructure. LTA build and pay for first set of trains.

SMRT has $600M retained earnings.

Now they want to share costs. It's like having cake and eat it.