SG Transport

Transport (Land): Parliament has passed a Bill which will raise the maximum penalty for train disruptions to 10% of the annual fare revenue of a rail line and multiple times the existing cap of $1m per incident and reflects the government’s declining tolerance for service disruptions. DB estimate this could imply a penalty of $10-25m, depending on the rail line impacted. The opportunity cost to public transport operators (PTOs) is significant – a $10m penalty would account for approximately 4%/16% of CD’s/SMRT’s FY14 earnings respectively. In addition, the Bill also gives LTA a say in the PTOs’ board of directors. This raises regulatory risks for the PTOs and suggests repairs and maintenance efforts will be kept up. Having said that, House do not think there will be a spike in associated costs, given the significant (planned) investments put in place over the past few years. DB remain optimistic reforms in the bus segment will drive significant profitability and earnings improvements for both ComfortDelgro (Buy with $2.45 TP) and SMRT (Buy with $1.80 TP). However, House would flag its estimated 2015 reform time-line as a key uncertainty.