ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

The dividend payout ratio has been around 70-75%, SHs have been huating all these years.

Payback time liao - just look at comfortdelgro post 2007 after section 44 passon - no performance till now betteroff in preference shares and less worries over pressures from energy and labour costs

(26-04-2012, 08:24 AM)Stocker Wrote: [ -> ]The dividend payout ratio has been around 70-75%, TH has been huating all these years.

(25-04-2012, 10:08 PM)lonewolf Wrote: [ -> ]Rolling stock actually refers to the train.

The sleepers should be part of the track infrastructure or refer to as P-Way (or Permanent Way). Not sure if SMRT depreciation policy mention anything about P-Way.

I did not find any P-Way in the policy, so i re-use the rolling stock policy instead. Base on what have been practiced, the P-Way is bearing the same depreciation curve as rolling stock

(25-04-2012, 10:08 PM)lonewolf Wrote: [ -> ]I have a question though. If the rail infrastructure assets does not belong to SMRT, why do they have a depreciation policy on those items? So does this mean the trains (the older batch) and the P-way and the signalling equipment belongs to SMRT?

Its a little confusing when MRTC (the statutory board) becomes SMRT (the pte ltd company), did those assets went to SMRT? Maybe need to go and dig out a copy of SMRT prospectus to have a better idea.

To be exact, MRTC does not become SMRT, but merge with LTA instead.

A summary of the license and operating agreement between LTA and SMRT stated the detail of ownership and licensing fee. I had just read it. For those interested, you can refer to 2011 AR of SMRT

The Licensing and Operating Agreement between SMRT and LTA for the NSL and EWL dictates that SMRT own the operating assets like trains, trains, permanent way vehicles, power supply equipment and cabling, supervisory control system, escalators and lifts, platform screen doors, environmental control system, electrical services and fire protection system, signalling system, communication system, automatic fare collection system and depot workshop equipment. LTA owns the non-operating assets like tunnels, tracks and stations.

Based on the LOA, it seems probably that LTA will have to pay for the resleepering of the tracks. And maybe that why SMRT does not have a depreciation policy of the P-Way since they dun own it.

(26-04-2012, 04:24 PM)lonewolf Wrote: [ -> ]The Licensing and Operating Agreement between SMRT and LTA for the NSL and EWL dictates that SMRT own the operating assets like trains, trains, permanent way vehicles, power supply equipment and cabling, supervisory control system, escalators and lifts, platform screen doors, environmental control system, electrical services and fire protection system, signalling system, communication system, automatic fare collection system and depot workshop equipment. LTA owns the non-operating assets like tunnels, tracks and stations.

Based on the LOA, it seems probably that LTA will have to pay for the resleepering of the tracks. And maybe that why SMRT does not have a depreciation policy of the P-Way since they dun own it.

After i read the LOA, i agreed with your accessment. LTA will pay the larger part of the 900 Mils, since resleepering of the tracks is the most expensive work.

SMRT will pay the rest, which include larger items likes Re-Signalling of EW and NS lines and Propulsion Change-out on existing trains. My ballpark figure is ~400 Mils (200 Mils for re-signalling + 200 Mils for Change-out). Anyone have different figure to suggest?

Below is abstracted from Lim & Tan report:

The $900 mln to be spent over 8 years to deal with the ageing rail infrastructure ($112.5 mln pa) will likely unnerve investors first. And merely saying it will be co-funded with LTA does not help either.

What would be helpful would be for the authorities to clarify that LTA will be responsible for the infrastructure replacements, and SMRT for replacing what needs to be replaced of the operating assets.

Assuming 50-50 split, which is too simplistic, but which works out to $56 mln a year for SMRT.

Point is SMRT presently spends about $30 mln a year on repairs and maintenance.

We have earlier downgraded SMRT to a HOLD.

---

Below are abstracted from Amfraser report:

SMRT plans $900m in rail maintenance, upgrade Bulk is for renewal, replacement; sum is on top of $30m annual maintenance.

April hasn't been a good month for SMRT with five breakdowns and an ongoing inquiry into earlier disruptions in December, so the rail operator plans to spend an estimated $900 million in additional maintenance and upgrading to make the ride a lot smoother.

Between now and 2019, nine areas have been identified for the upgrade to ensure a safe and reliable rail system, said Tan Ek Kia, SMRT Corp's executive director and interim chief executive officer.

"The bulk will be for renewal and replacement, with some brought forward instead of maintaining it, for example, the train‐borne electronic cards," he said yesterday at a media briefing.

The system upgrade over the next eight years will be implemented on top of the usual $30 million‐plus annual maintenance programme for the North‐South and East‐West MRT lines.

Mr Tan stressed that the $900 million is an estimate and discussions
with the Land Transport Authority are necessary regarding a "cost-sharing
arrangement".

According to SMRT Corp senior vice‐president for communications and services Goh Chee Kong, the plans to install wheel impact load detection systems and positive‐locking rail claws, and re‐sleeper and re‐signal the train lines, among others, have always been there.

"They are ongoing. But after the disruptions in December, we decided to bring them forward," said Mr Goh. On Dec 15 and 17 last year, two massive MRT breakdowns affected 210,000 commuters and resulted in the ongoing Committee of Inquiry (COI). The COI, which started on April 16, is expected to last six weeks.

(02-02-2012, 08:13 AM)Zelphon Wrote: [ -> ]Why is LTA paying for the trains with taxpayers' money and SMRT reaps the profits????

LTA can choose not to help.. SMRT will have no choice but to raise fares more substantially. Even if SMRT raise fares by 50 cents per trip today, what can we really do? Most of us will still pay the fare, make more noise on forum, bitch about it over lunch, but we still have to take the bus or mrt that gets us to work and back.

Let LTA subsidise them. In fact, subsidise them more, then the public transport fares can be kept low

---

(25-04-2012, 11:06 AM)shanrui_91 Wrote: [ -> ]why smrt drops a bit only? should not there be mass panic about this sum that is 6,7 times their net profits?

SMRT blue chip mah, wont cut dividend la...

they think it is impossible that their dividends can drop by up to half if smrt doesnt take on more debt

---

(25-04-2012, 04:48 PM)shanrui_91 Wrote: [ -> ]http://app.lta.gov.sg/corp_press_content...u8381p6o95

LTA has already forked out $370m to procure for 34 trains (yes, train is very cheap $10m can be used for 25 years). As they cannot raise train and bus fare now, the government needs to subsidize them indirectly.

Seriously, they should just nationalize it and there won't be anything like listed co needs to earn money. Competition is useless here as even if SMRT gives you the lousiest service, you cannot choose to take NEL to go from Jurong East to Yishun. They earn money by giving you the lousiest service as there is no alternative route. And if they compete for the same route, they will suffer losses for sure. Is the government trying to say that if they run it, there will not be competition and the government will give you lousy services?

They are allowed to capitalise till 2028 as these are long-term maintenance that has never been carried out since the start of MRT line. I don't think they will be doing a resleepring, changing of claw and signalling system every 10 years. 900 millions can get you 800 buses for 4+ years

Cannot nationalise la.. We have to tell the world we have a free market... just like we also have to tell others that we want to raise productivity, raise it higher, justify our higher pay, then sell us houses at higher price mah

(28-04-2012, 10:55 PM)money Wrote: [ -> ]LTA can choose not to help.. SMRT will have no choice but to raise fares more substantially. Even if SMRT raise fares by 50 cents per trip today, what can we really do? Most of us will still pay the fare, make more noise on forum, bitch about it over lunch, but we still have to take the bus or mrt that gets us to work and back.

Let LTA subsidise them. In fact, subsidise them more, then the public transport fares can be kept low

If LTA chooses not to help, SMRT also cannot raise price if the Public Transport Commission does not allow it. The only choice for them will then be to issue bond or dilute shareholder's equity which include Temasek.

Therefore, they are faced with 4 choices right now:

1)LTA helps - People will complain about LTA helping them again
2)SMRT raises fare - Not only will people complain about SMRT, the government will be the prime target
3)Dilute share or issue $900m bond - Temasek's return will suffer since not only do they suffer depreciation expenses, they also have to bear $36m interest expense yearly assuming a 4% dividend yield.
4)Nationalize it

2 will obviously not be possible as PAP still wants to be elected the next time. 3 and 4 are possible, but the government simply don't like it. The easiest way out is still 1 since the complaint will be kept to minimum.

SMRT and SBS are listed companies - the goal is to generate profit and hence dividend for their shareholders and not to make transportation cheaper.

My only concern is why didn't the share fall by a greater amount? It is not even a 10% fall yet. $1.00 will be a nice rounded figure for SMRT

My 2 cents:

In my opinion, I think people are complicating the various issues toegther.

When the trains keep breaking down, this is a engineering issue which SMRT needs to address since it is the operator of the trains and the rail infrastructure. This includes spending whatever is necessary to maintain the operational readiness of the trains and the rail infrastruture that comes with it. I think LTA's role here should be just to provide technical expertise and work closely with SMRT to resolve the engineering issues, including advising SMRT on certain strategies to overcome the aging infrastructure issue. However, if the aging infrastructure issue is something that is more deep rooted and beyond the responsibility and expertise of SMRT, then LTA (and/or the govt) should step in to address this problem.

As for the overcrowding issue, in a way, both SMRT and SBS have an incentive to resolve this issue to the best of their abilities, as the more passengers they ferry the more fares they collect. Unfortunately, their ability to tackle this issue is constraint by the lack of resources and the inherent limitations of the infrastructure. To the credit of both SMRT and SBS, I think they have done what they can to resolve this issue (e.g. increase train and buses frequency, etc). However, the govt certainly has to step in to deal with this as it is something beyond the operators' abilities.

As for the setting of transport fares issue, or the lack thereof, the govt should have pressed ahead with reforms and introduce an alternate fare setting mechanism. Along with a new fare setting mechanism, the govt could have also incorporate greater contestability among the different operators (e.g. introduce more operators). But it has now backtrack on its plans in the face of public backlash (arising from the general election and the spate of train breakdowns). And we are back to square one with a system that clearly leaves everyone unhappy.

(29-04-2012, 02:10 AM)rafflesplaceguy Wrote: [ -> ]My 2 cents:

In my opinion, I think people are complicating the various issues toegther.

When the trains keep breaking down, this is a engineering issue which SMRT needs to address since it is the operator of the trains and the rail infrastructure. This includes spending whatever is necessary to maintain the operational readiness of the trains and the rail infrastruture that comes with it. I think LTA's role here should be just to provide technical expertise and work closely with SMRT to resolve the engineering issues, including advising SMRT on certain strategies to overcome the aging infrastructure issue. However, if the aging infrastructure issue is something that is more deep rooted and beyond the responsibility and expertise of SMRT, then LTA (and/or the govt) should step in to address this problem.

SMRT does have the responsiblity to maintain the track since it has been given the license to operate. However, when it comes to the scale of this project, it will make more sense for LTA to be more involved simply because these assets belongs to the LTA especially with the new leasing model where even the trains are procured by LTA. LTA should then charges a higher licensing fee to the operators. It does not make sense if the operators are forced to build MRT network in the future, since they will not bother building additional network.

Quote:As for the overcrowding issue, in a way, both SMRT and SBS have an incentive to resolve this issue to the best of their abilities, as the more passengers they ferry the more fares they collect.

You are right that the more passengers they ferry the more fares they collect and the higher the revenue is. However, profit will increase only if the number of train and bus trips remain the same. Solving overcrowding issue does not has a significant impact on passenger volume because the alternative is to walk, take a taxi or to buy a car.

As for buses, the more crowded the buses are, the more happy SMRT and SBS are. Buses have high fuel expenses and they operate like airline does. The optimum profit generation is achieved when each bus trip is overcrowded, which means the less bus trip the better it is. It is the passenger load factor that counts and not the passenger volume. This is also why both SMRT and SBS suffer losses and poor return in their bus operations.

Quote:As for the setting of transport fares issue, or the lack thereof, the govt should have pressed ahead with reforms and introduce an alternate fare setting mechanism. Along with a new fare setting mechanism, the govt could have also incorporate greater contestability among the different operators (e.g. introduce more operators). But it has now backtrack on its plans in the face of public backlash (arising from the general election and the spate of train breakdowns). And we are back to square one with a system that clearly leaves everyone unhappy.

There is no such thing as greater competition between different operators unless you are talking about 2 operators running the same network. Even so, will one really chooses SBS over SMRT if SMRT train is here while you have to wait for another 5 mins for SBS train? What type of better services are we expecting from the operator - a better seat, more entertainment, service staff to greet you when you board the train?

MRT has a higher fixed cost component which means the more passenger they have, the more profitable it is. To allow them to compete will result in heavy losses for the MRT. Just to illustrate, SMRT's rail has a 21.5% profit margin (despite the circle line not reaching its peak yet) while SBS's rail only has a 14.5% profit margin.
Why is there this 7% differences?

The answer lies in SMRT operating on NS and EW lines, which have 27 and 29 stations respectively. As for the NEL that SBS operates, there are only 17 stations. A train that is running over 27 stations will obviously be more profitable than a train that is only running through 17 stations.

As such to allow them to compete will result in losses for the operators which will then ask for an increase in fare to cover the losses. Some industries are simply not viable to have too much competition. For e.g Mediacorp and Media Work.

As for a new fare mechanism, the best will still be to nationalize them and consolidate the mrt as a whole and bus as another entity to take advantage of economics of scale. Using MRT to cross-subsidize bus, then with the help of advertisement and rental, the government will then charge at 0 profit which is price = cost. Only when profit is taken out of the equation will we be able to truly enjoy lower transport fares.