SMRT

SMRT: The Straits Times flagged that the prospect of a fare hike has failed to lift the fog of pessimism around SMRT, with most analysts maintaining their Sell rating on the stock. Maybank KE has noted that while the fare increase would give SMRT an estimated net benefit of $13.2m pa, this alone may not be sufficient to offset losses in its fare business. SMRT has been seeing escalating costs, mainly due to higher wages (+21% y/y), and this cost component tends to be very sticky and will continue to weigh on SMRT’s bottom line. Meanwhile, the Downtown Line 2 – operated by rival SBS Transit – opens in 2016, and will put ~17% of its fare revenue at risk. Analysts have voiced concerns that DTL 2 may erode SMRT’s profits as it runs parallel to the western leg of SMRT’s East-West Line.