The latest issue of The Edge cover story is SMRT.
IMO, one of the likely option for a sustainable model while keeping low fare, is the Downtown Line model. LTA funds almost all the capital exp, while operator only focus on operation. It will change the asset-heavy business to an asset-light service business. So far Mr. Market is bearish on SMRT, with 52-weeks low of $1.51
The trend seems already started, with the "first deport that LTA is developing and funding, as part of a review of the enhanced structural assistance that the government is providing the bus industry" as stated in the news report.
LTA to build new bus depot for 500 SMRT buses
SINGAPORE — A new bus depot will be built off Jurong West Avenue 2, the Land Transport Authority (LTA) revealed today.
The bus depot is scheduled to be completed by 2015.
http://www.todayonline.com/singapore/lta...smrt-buses
To me the crux of the problem really isn't about how the operating concession is modelled, rather it is a mathematical issue of controlled fare revenue v.s. free market cost inflation.
No matter what sort of model is being proposed, even if it starts off well balancing the needs of all stakeholders, the public transport operator will still face this inherehnt contradiction as the years pass:
1) Topline fare increases - In this environment, the whole thing has become political toxic. Any slightest fare increase will result in howls of bloody murder. They will be lucky to even get 1-2% p.a. over the next 5 years.
2) Wage inflation - Single biggest cost component likely to grow at a rate of 4-6% p.a. over next 5 years. This could escalate even further if there are changes to CPF or foreign workers policies.
3) Energy - Persistenly high for the past few years although some small dips in recent quarters. Nevertheless it seems highly likely it will go up faster than the politically permissable topline rate of 1-2% p.a.
4) R&M - As the equipment ages, maintaince cost increase will be a combination of general inflation + increase in volume of work. Estimated rate is likely 7-8%p.a.
5) All other business overheads - Likely to be at a rate close to general infation and GDP growth, i.e. 2-4% p.a.
There is simply no way any model can work if the topline is controlled in a tight and politically expedient manner while letting general costs escalate as per free market. Profits will be squeezed out sooner or later.
The only way around it is for the governement to either:
1) Subsidise in a direct manner using grants, cost past through claims, leasing of capital equipment not on commercial terms etc.
2) Using indirect underhand methods like the recent Sports Hall master tenancy, i.e. give SMRT favorable property leasing contracts or bus stop ad revenue sharing arrangements that are not on an arms length basis so that it can more or less "bao ciak" some money in order to top up the deteriorating short fall from its main train / bus business.
Either way will trigger political and social controversy on the use of taxpayer's money if done too far and too long.
Messy situation indeed. The only hope now is for them to fix up service levels to a more tolerable level within 3-5 years and on a broader basis realign Singapore's social contract (i.e. the role of the government in all areas including public transport) to create a more acceptable political citizenry so that fare prices can be allowed to "float" again.
IMO, free lunch is difficult, if not impossible to revoke. The low fare of Singapore public transport will stay.
I agree that energy, staff, and R&M are major expenses of SMRT. The expenses are not within control of SMRT, not even LTA, but the financing model of public transport is within LTA/SMRT control.
The depreciation & amortization expense of SMRT's rail and bus segments, is approx 10% of revenue. It is a size-able expense to work-on.
(not vested)
(23-04-2013, 04:02 PM)mobo Wrote: [ -> ]To me the crux of the problem really isn't about how the operating concession is modelled, rather it is a mathematical issue of controlled fare revenue v.s. free market cost inflation.
No matter what sort of model is being proposed, even if it starts off well balancing the needs of all stakeholders, the public transport operator will still face this inherehnt contradiction as the years pass:
1) Topline fare increases - In this environment, the whole thing has become political toxic. Any slightest fare increase will result in howls of bloody murder. They will be lucky to even get 1-2% p.a. over the next 5 years.
2) Wage inflation - Single biggest cost component likely to grow at a rate of 4-6% p.a. over next 5 years. This could escalate even further if there are changes to CPF or foreign workers policies.
3) Energy - Persistenly high for the past few years although some small dips in recent quarters. Nevertheless it seems highly likely it will go up faster than the politically permissable topline rate of 1-2% p.a.
4) R&M - As the equipment ages, maintaince cost increase will be a combination of general inflation + increase in volume of work. Estimated rate is likely 7-8%p.a.
5) All other business overheads - Likely to be at a rate close to general infation and GDP growth, i.e. 2-4% p.a.
There is simply no way any model can work if the topline is controlled in a tight and politically expedient manner while letting general costs escalate as per free market. Profits will be squeezed out sooner or later.
The only way around it is for the governement to either:
1) Subsidise in a direct manner using grants, cost past through claims, leasing of capital equipment not on commercial terms etc.
2) Using indirect underhand methods like the recent Sports Hall master tenancy, i.e. give SMRT favorable property leasing contracts or bus stop ad revenue sharing arrangements that are not on an arms length basis so that it can more or less "bao ciak" some money in order to top up the deteriorating short fall from its main train / bus business.
Either way will trigger political and social controversy on the use of taxpayer's money if done too far and too long.
Messy situation indeed. The only hope now is for them to fix up service levels to a more tolerable level within 3-5 years and on a broader basis realign Singapore's social contract (i.e. the role of the government in all areas including public transport) to create a more acceptable political citizenry so that fare prices can be allowed to "float" again.
I took green line on sunday, it was raining heavily and water was leaking from more than one place in the train's roof. A little girl in the train was even playing with the water dripping down. More maintenance please...
Perhaps SMRT can get the Govt to sponsor new trains for the benefit of all commuters.
I am expecting a dividend cut......
Feel like timing an entry. Key is when ....
(29-04-2013, 12:36 AM)Dividend Warrior Wrote: [ -> ]I am expecting a dividend cut......
Dividend cut started from 2H (Mar12) and will continue to slide due to lower EPS,
1H (Sep12) : 1.5ct
2H (Mar12) : 5.7ct
1H (Sep11) : 1.75ct
2H (Mar11) : 6.75ct
1H (Sep10) : 1.75ct
2H (Mar10) : 6.75ct
1H (Sep09) : 1.75ct
2H (Mar09) : 6ct
1H (Sep08) : 1.75ct
With EPS = 6.3ct (9M) & Profit Guidance given for Q4 (ie loss), even if we assume EPS = 0ct for Q4, the balance EPS available (assuming 100% payout) for distribution = 6.3ct - 1.5ct = 4.8ct.
This is already lower than last year's 5.7ct. So, a Q4 loss and less than 100% payout can only mean an even bigger cut.