Fare hike of 3.2% is below our expectations for a 5% revision

Net benefits: SGD28.8m for SBS Transit, SGD13.2m for SMRT

Investment thesis on the sector remains unchanged, with the latest development reinforcing our negative view on SMRT

What’s New

The Public Transport Council (PTC) yesterday announced a fare increase of 3.2% to be implemented from 6 Apr 2014. It did not roll out the full fare cap of 6.6% (2012: 4.5%; 2013: 2.1%) that was withheld over the past two years in a bid to minimise the impact on commuters. The balance of the fare adjustment (3.4%) will be implemented in the subsequent years. The public transport operators (PTOs) are also required to make a one-off contribution to help fund needy commuters.

What’s Our View

The fare hike of 3.2% falls short of our expectations for a 5% increase. After adjusting for the one-off contributions to fund needy commuters, we estimate SBS Transit and SMRT can expect to receive a net benefit of SGD28.8m and SGD13.2m respectively. This is below our expectations and we lower our forecasts for SMRT and ComfortDelGro by 49% and 4%, respectively, and cut our TPs.

Source: Maybank Kim Eng Research - 17 Jan 2014