SMRT/Comfort/SBS

SMRT/Comfort/SBS: The Public Transport Council announced a 2.8% fare hike starting 5 April 2015 for trains and buses, the result of -0.6% adjustment in 2014 and +3.4% adjustment carried over from 2013’s fare review. The formula for fare review comprise of inflation (40%), wage changes (40%) and energy costs (20%). However, the impact on valuation of the two public transport companies, ComfortDelgro (which owns 75% of SBS) and SMRT, should be limited. Taking into consideration their respective $5.5m and $8m contributions to Public Transport Fund to subsidize the needy, the fare hike is estimated to rake in $16.4m and $18.6m more for SBS and SMRT, which represent only 1.8% and 1.6% of their last 12-months top line earnings. Furthermore, a fare reduction may be in the books next year, as hinted by transport minister Lui Tuck Yew in a parliamentary reply to MP Gan Thiam Poh three days ago. He explained that the lower energy prices since 2H14 will be accounted for in the 2015 fare review exercise, which sets public transport fares in 2016. Meanwhile, current lower oil prices is likely to benefit SMRT more than CD, the former has a relatively unhedged book while the latter is 70% hedged for its FY15 fuel requirements. Maybank-KE is Neutral on the sector and recommends Hold for both SMRT and CD. SMRT has TP of $1.36 with higher operating margins as a possible catalyst. CD has TP of $2.50, with taxi fleet expansion as possible catalyst.