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Competitive Tender: How Smooth Will The Transit Be For SBS?
Corporate Digest | 27 May 2014
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By: Choo Hao Xiang
Articles (151) Profile

At this juncture, it does seem like investors are elated about the announced public bus industry restructuring.

Shares of SBS Transit finished the week ended 23 May 23.6 percent higher as news that a “government contracting model” would be in place in the latter half of this year broke out.

Not only is the rise the largest weekly gain since May 1999, the jump paves way for SBS to register the highest monthly return in 16 years.

Month-to-date, the company’s shares are up by 27 percent. The last time this level of quantum was registered was back in November 1998 when it yielded 35.6 percent.

Why such a violent reaction despite much anticipation about the change? Well, investors might have been glad that changes are officially on the horizon and are gradual.

The table below depicts the changes and the probable impacts.

Given how escalating operating costs had ate into profits and left SBS’ bus operation in the red since FY11, these changes are music to investors’ ears.

A point to note is that any financial impacts would probably not be felt until 2016 when the new model is fully implemented.

How tough would this two-year interim be for SBS’ bus operation then? While ridership growth more or less plateaued around 3 percent, the recent 3.2 percent rise in fares effective 6 April will act to alleviate some pressure.

Improvement in productivity has also helped in this aspect with the momentum still going in 1Q14 as operating losses narrowed after operating losses fell 2.5 percent in FY13.

However, considering that SBS would still have to bear the revenue risk as the current model is based on fare revenue, this means that SBS would have to run its bus operation on the existing loss-making model for at least two more years.

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

Please click here for more information about this author.

SBS Transit  4.200 +0.13 +3.19%   
Business: Public transport operator in S'pore. [FY18 Turnover] Public transport svcs (95.8%), other commercial svcs (4.2%).

Insight: Feb-19, FY18 revenue jumped 16.1% to $1.4b mainly ... Read More

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