Singapore Land Transport - DBS Research 2019-10-08: Fare Hike Of Full 7% Allowed, From 28 December 2019

SBS TRANSIT LTD (SGX:S61) COMFORTDELGRO CORPORATION LTD (SGX:C52)

Singapore Land Transport - Fare Hike Of Full 7% Allowed, From 28 December 2019

Public Transport Council grants full 7% increase under fare formula calculation, effective 28 December 2019.
Positive for rail; no impact on transport operators’ bus revenue.
Estimated increase in rail revenue of S$18.8m for SBS Transit (SGX:S61); c.3-4% to ComfortDelGro (SGX:C52)’s bottom line.
Positives may be partially negated by taxi, FX translation; maintain HOLD on ComfortDelGro.

The Public Transport Council (PTC) announced on 8 October 2019 that it has decided to grant the fare formula output of 7% in full in its fare review. The fare review exercise commenced earlier on 3 September, and based on the fare formula applicable from 2018 to 2022, the maximum allowable fare was 7%.
The fare adjustment will be applicable from 28 December 2019, roughly the same commencement date as per previous years’ practices.

For concessionary card holders, the card fare adjustments will be capped at 4 cents. The increase for adult card fares will amount to a 9-cent increase per journey.
According to PTC’s announcement, for an average journey of 10km, adult card fares will increase from S$1.39 to S$1.48, while that for senior citizens will rise from S$0.88 to S$0.92. This does not include the 50-cent pre-morning peak discount (for tap-ins before 7.45am on weekdays, excluding public holidays), which will continue.

The fare adjustment of 7% translates into a S$132.5m annual revenue increase for Public Transport Operators. The positive effects will only accrue to both rail operators, SBS Transit Rail and SMRT Trains. While for buses, note that it is under the Bus Contracting Model and the PTOs do not undertake fare revenue risks. The increases in annual revenues for SBS Transit Rail and SMRT Train amount to S$18.8m and S$40.2m respectively.
The PTC has decided that both SBS Transit and SMRT should contribute 10% and 5% of their respective increases in fare revenues to the Public Transport Fund, amounting to S$1.88m and S$2.01m respectively.

As per our earlier note on 4 September 2019 (Singapore Land Transport - Fare Review 2019 could see increase of up to 7%), we had indicated that the fare increase would be positive for operators.
We now estimate that the 7% increase in fares could add on about 3-4% to our ComfortDelGro’s forecast for FY20F, all else constant. We note that the Downtown Line (DTL) is incurring losses, with average ridership of c.467,000 per day as of 2Q19. Thus, the fare increase should aid in reducing losses. For the North-East Line, there are various moving parts with it on the New Rail Financing Framework (NRFF), with a cap-collar and cost-revenue sharing formula.

While the fare increase should lead to an improvement in its rail operations, we continue to expect the positive effects to be partially negated by the challenges it currently faces in its taxi operations. ComfortDelGro’s taxi fleet continues to contract and now stands at c.11,200 (as at July 2019), and the YTD average fleet is 7% down from the same period a year ago (January – July). We believe competition remains keen and could pose downward pressure on taxi margins.
In addition, the continued GBP weakness should also lead to lower contribution from its UK operations when translated into SGD. We are maintaining our forecasts and recommendation. ComfortDelGro: HOLD, Target Price: S$2.59.

Andy SIM CFA DBS Group Research | https://www.dbsvickers.com/ 2019-10-08

SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000

HOLD MAINTAIN HOLD 2.590 SAME 2.590