• Delay in DTL 2 shortened by a few months
• DTL project likely to breakeven earlier
• Maintain BUY

Good news on DTL 2’s schedule

Singapore Transport Minister Lui Tuck Yew announced on 29-Sep that the Downtown Line 2 (DTL 2) mass rapid transit (MRT) line will be opened in 1Q16, a few months ahead of schedule. The original schedule was delayed from end-2015 to mid-2016 after one of its main contractors, Alpine Bau, went into insolvency last year. He added that additional manpower as well as innovative work processes helped accelerate the project and all the contractors will continue to do so in a bid to try to bring forward the opening to even earlier than 1Q16.

Expect DTL project to breakeven earlier

As at 2QFY14, CDG recorded loss of S$6.2m from its Downtown Line 1 (DTL 1) operations but we estimate CDG to breakeven on its start-up costs in the period between phase 2 and phase 3 of the whole DTL project. With the opening of DTL 2 brought forward by a few months and possibly even earlier, we believe this is good for CDG as this would also logically allow it to breakeven earlier as well. Beyond its breakeven point, we expect CDG to be able to cover the licensing fee charged by LTA through revenue generated from DTL and hence see meaningful income contribution. Furthermore, we believe ridership will improve significantly given that the DTL 2 comprises 12 stations and one depot, including four interchange stations, where we expect traffic flow to increase considerably. We also believe the advertisement and rental business segments, which offer higher margins, to further boost revenue and profitability.

Maintain BUY

With the impact of DTL already factored in our financial model previously, we retain our forecasts since the opening of DTL 2 continues to be in FY16. Although the estimated total licensing fee of ~S$1.6b over the 19-year operating lease should have started in 2013 when DTL 1 commenced, we expect to see significant increase only upon opening of the full DTL in 2017 since the variable component of the fee depends on ridership. With the slight retreat in share price since our last update in Aug-14, we maintain BUY with an unchanged fair value estimate of S$2.92.

Source: OCBC Research - 30 Sep 2014