SBS Transit

SBS Transit: As part of the new government contracting model (GCM), LTA will be taking over a fleet of 396 buses from SBS Transit for an aggregate $187m.

The fleet comprises $164m purchase contracts for 346 new buses that are scheduled for delivery in 2016 and 2017, as well as 50 existing buses delivered between Jun and Dec this year, worth $23m or 6.8% of the group's NAV of $338m ($1.09/share).

Following the sale, SBS will lease back the buses from LTA for its operations, Under the new contracting model, LTA will determine the bus services to be provided and service standards, and operators will have to bid for the right to run the services. The operators will be paid to run the services, while the government will retain fare revenue.

Thus far, British transport operators Tower Transit and Go-Ahead Group have won the first two contracts under the new model. Tower Transit will run the Bulim bus depot and 26 routes serving the Bukit Batok, Clementi and Jurong East interchanges starting May 2016. Go-Ahead will operate 25 services out of the new Loyang depot as well as the Pasir Ris and Punggol bus interchanges.

The other nine packages will be run by the incumbent operators, SBS and SMRT, as negotiated bus contracts for about five years. Once these contracts expire, more bus parcels will be tendered out.

In line with this development, both ComfortDelGro (+0.3%) and SMRT (+0.7%) are trading higher in early trading, while thinly traded SBS Transit has yet to register any trades.

Maybank-KE estimates that under the asset-light regime, ComfortDelGro, which owns 75% of SBS, could derive a cash windfall of $800m ($0.37/share), which would give the group added flexibility for M&A growth or special dividend distribution.

The stock finds favor amongst investors for its relative earnings stability over SMRT, deriving a 2.8% yield and potential for M&A-driven growth.

The street has 7 Buy, 5 Hold and 2 Sell ratings on ComfortDelgro with a consensus TP of $3.27.