• 4.3% hike on bus and train fares will be implemented from 29 Dec.
• Fare hike could help to turn around ComfortDelgro’s rail operations from losses sooner than expected.
• Maintain ADD and DCF-based Target Price of S$2.75 (WACC: 7.4%, LTG: 2%).

Public Transport Fares set to Increase 4.3% by Year-end

• The Public Transport Council (PTC), having concluded its 2018 Fare Review Exercise (FRE), today announced it will implement the maximum allowable adjustment quantum of 4.3% for bus and train fares.
• The fare hike will take effect from 29 Dec 2018.
• Fare increases will be significant for adults commuting using travel cards (up 6 Scts per journey) or single-trip ticket for trains (up 10 Scts).
• As part of the 2018 Fare Review Exercise, ComfortDelgro’s subsidiary, SBS Transit (SGX:S61), will be required to contribute 5% of its expected increase in fare revenue (c.S$0.55m) to the Public Transport Fund, which will be tapped by the government to issue vouchers for lower income families to cope with the fare adjustment.

Rail Operations Could Turn Around Sooner

• According to the Public Transport Council, the fare hikes should add S$10.9m to ComfortDelgro’s annual rail revenue.
• We think this could help turn its rail operations around from losses sooner than expected; we believe the turnaround could possibly be achieved in 2H19F
• We estimate the fare hikes could possibly add 0.24 Scts (c.1.6% revision) to our earlier FY19F EPS forecast which had assumed a 2% hike.

Maintain ADD; Target Price S$2.75

• We maintain our ADD call and leave our forecasts unchanged for now.
• Near-term catalyst could come from better-than-expected 3Q results, which are slated to be released on 9 Nov after trading hours.
• A possible revival in Private-Hire Car competition following the entry of a new player into the market could pose a key downside risk that could impact the recovery of ComfortDelgro’s taxi earnings.