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SMRT cost has been increasing a lot since FY 2009, among them have been staff cost and energy cost ( a cost aspect which they cant control). Now with staff cost (wages) being pressured to move up, expect lower profits for SMRT. If cost keeps increasing faster than the rise in revenue ( increase in population).

In my view SMRT is in a classic industry which W. Buffett (he mentions airlines) avoids. SMRT's revenue is affected by regulatory forces and some of its cost is affected by reguatory ( the repairs it has to make and the labour [no more using of cheap FT and having to increase the wages of its workers of lower tiers])

My view is SMRT has a classic sandwich problem - regulatory pressures on the revenue side but market forces dictating the costs/expenses side. So you are in a lose-lose situation - you are subject to market forces such as inflation in items such as staff costs and fuel, but cannot have the permission from the authorities to raise fares as this is partly a "political" issue as well.

Which is why the CEO is saying the current business model is unsustainable. Not just for the above reasons, but also due to the fact that:-

1) Breakdowns are more frequent, resulting in service disruptions and "badwill".

2) More preventive maintenance needs to be done just to prevent problems (which was deferred due to the previous CEO focusing more on retail!)

3) Yet more corrective maintenance needs to be spent on other new problems cropping up (rail cracks?!)

4) More capex in future years to either replace, refurbish or repair parts of the ageing rail network.

The fact that SMRT has a "captive" passenger base doesn't really matter; an increase in volumes, if not accompanied by an increase in ASP (fares) and a moderation in costs; will still lead to an unsustainable business model.

(01-05-2013, 02:17 PM)CY09 Wrote: [ -> ]SMRT cost has been increasing a lot since FY 2009, among them have been staff cost and energy cost ( a cost aspect which they cant control). Now with staff cost (wages) being pressured to move up, expect lower profits for SMRT. If cost keeps increasing faster than the rise in revenue ( increase in population).

In my view SMRT is in a classic industry which W. Buffett (he mentions airlines) avoids. SMRT's revenue is affected by regulatory forces and some of its cost is affected by reguatory ( the repairs it has to make and the labour [no more using of cheap FT and having to increase the wages of its workers of lower tiers])

Ha! Ha!
This is a classic case of Revenue is up ( %? ) but profit is down ( %? ), if i am not mistaken . It's a kind of hard for the commonsense if you just look at Revenue & Profit. Maybe a good case to study "Cash Flow" for some experts to share with us.

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(01-05-2013, 02:28 PM)Musicwhiz Wrote: [ -> ]My view is SMRT has a classic sandwich problem - regulatory pressures on the revenue side but market forces dictating the costs/expenses side. So you are in a lose-lose situation - you are subject to market forces such as inflation in items such as staff costs and fuel, but cannot have the permission from the authorities to raise fares as this is partly a "political" issue as well.

Which is why the CEO is saying the current business model is unsustainable. Not just for the above reasons, but also due to the fact that:-

1) Breakdowns are more frequent, resulting in service disruptions and "badwill".

2) More preventive maintenance needs to be done just to prevent problems (which was deferred due to the previous CEO focusing more on retail!)

3) Yet more corrective maintenance needs to be spent on other new problems cropping up (rail cracks?!)

4) More capex in future years to either replace, refurbish or repair parts of the ageing rail network.

The fact that SMRT has a "captive" passenger base doesn't really matter; an increase in volumes, if not accompanied by an increase in ASP (fares) and a moderation in costs; will still lead to an unsustainable business model.

Well, all of what you say, almost all can understand and why not the Papy can anticipating this scenario in the past?
But someone had said in this forum for taking care of Changi Airport facilities expansion into future needs, Papy can and has done quite well. Why? Is it because of no subsidy mentality? In fact largest shareholder had made a lot of money out of SMRT in the past. And the money was from us.

Focusing back on SMRT, I noticed that SMRT bus operations keep posting steeper losses. In fact this FY, it is already below cashflow breakeven point. My calculations is that the bus operations will continue to be below cashflow breakeven point this year. (I assumed 20.39 Mil depreciation expense of bus as in FY 2012).

If i was truly a private company, I will just shut down my bus operations or sell it off to SBS if it is interested, unless SMRT knows that bus fares will increase by 6-8% during the next fare review. This will ensure it breakseven on cashflow. But oh well, considering who its major shareholder is and the affliation mgmt has with the ruling govt. SMRT just has to absorb the losses. its LRT operations is another cash flow loss making operations too!

Will likely consider investing in SMRT when a) the sg population wakes up to reality on transport issues by accepting (without going to Hong Lim Park to "complain" that they have to pay higher fares etc) or b)WP becomes govt and nationalise public transport. Hope they give a good takeover price!
(not vested now)

you will only need to reference sbs transit. they have capex rising before smrt have their issues.

having said that, alot of the transportation segments not really fat margins, cabs, buses. the plan will be to stick to rail operations.

SMRT is in my watch list. What are there to watch for in a highly regulated business?

1) There are "UBAH" (changes) pending in the working model between SMRT/LTA. Will the changes bring in opportunity? Maybe...
2) If there is a transition from asset-base to service-base business model, will SMRT be revitalized to a highly profitable company again? maybe...
3) Will transport biz become non-core, and a minor contributor to profit? Maybe since rental op profit superseded rail op profit in FY13...

Too many maybes, so better remains in my watch-list, instead of portfolio list

For me, SMRT should be ideally operated on a target of "breakeven profit". SMRT should be a National asset enjoyed by every citizen. Not an asset for the largest shareholder to make more money from us, the citizens. The trouble is PAPY thinks every Singapore's asset must make money for them. So now Papy is in dilemma now, i think. Because the citizens know who made the most money in the past. The future???

so much talk going on here... cannot buy... revisit in 3 months time.

OSK/DMG report, TP $1.25, rating SELL;
Phillip Security report, TP $0.93, rating SELL

OSK/DMG:
SMRT: Dividend Slashed As Prospects Dim (SELL, S$1.48, TP: S$1.25)
Joshua Low ( +65 6232 3839, joshua.low@sg.oskgroup.com)
SMRT reported 4QFY13 results which came in below the market’s
already lowered expectations. This pulled down FY13 earnings, which
slumped 31% to SGD83m. Management continues to foresee
challenges that will impact profitability in the short term. The payout
ratio has been cut to 45% of earnings. We lower FY14 earnings by 16%.
Maintain SELL with lower DCF TP of SGD1.25 (from SGD1.37).
4QFY13 earnings in the red due to cost pressures, impairment. SMRT
reported 4QFY13 PATMI losses of SGD12m (versus SGD14m profit in
4QFY12) which came in below our and consensus’ expectations. The weak
results were due to higher staff and repair and maintenance costs, as well
as a SGD17m impairment of interest in Shenzhen Zona, partially offset by a
SGD22m goodwill impairment done in 4QFY12.
Cut in dividend payout could remain till conditions improve. SMRT had
declared FY13 dividends of SGD2.5¢ a share, which amounts to a payout
ratio of 45% of FY13 PATMI. Historically, SMRT had payout ratios ranging
between 70-100% of PATMI. Though management has not committed to a
45% payout ratio for the future, we believe the payout ratio will only be
raised when profitability improves.
Unexciting ridership growth. Rail average daily ridership grew 3% y-o-y in
4QFY13, a slowdown from the 9.3-11.8% run rate for the same periods in
FY10-12. Average daily ridership for CCL was 360k which we believe
remains under the breakeven level.
Maintain SELL, expect further cuts from the street. SMRT’s valuation is
far from attractive, trading at 25.6x FY14 (FYE Mar) P/E vs ComfortDelGro’s
16.1x FY13 P/E. Apart from a higher than expected fare revision following a
fare formula review, we see little potential catalysts for a turnaround given
the cost pressures that SMRT is faced with

http://remisiers.org/cms_images/research...atters.pdf

Phillip Security:
Recommendation: Sell
Previous close: S$1.48
Fair value: S$0.93
 FY13 profits of S$83.3mn (-30.5%y-y).
 Elevated CAPEX guidance of S$500mn.
 Full year DPS cut to 2.50cents.
 Outlook statement remains negative.
 Maintain Sell with revised target price of S$0.93.

http://remisiers.org/cms_images/research...050213.pdf

Seeking for some advices here.

As mentioned previously, I have 15 lots @1.88 using my CPF funds. Although the price drop quite badly and hovering around the 1.6 region since last year, I am able to justify holding the shares as at least the dividend is paying me more than what CPF is paying me @2.5%. I can continue holding as the cost price will get cheaper over time and hopefully, the price can slowly crawl its way up to the breakeven point.

With the drastic cut of the dividend, the reason do not hold anymore. I cannot even justify additional purchase to average down as the dividend pay much lesser than what CPF is paying me. Of course unless I am hoping for capital gain... But that is not my purpose when I purchased using my CPF. I'm looking for something that is safe and also pays better than CPF.

I know my choice of choosing SMRT might not be correct as a safe yield stock. The increased in ridership/train revenues, rental over the past years made me believed it was safe... But I also know the due diligence I did for this purchase is very lacking.

As such, I have hope to rethink the current situation more seriously. Currently I am comtemplating on the actions (or non-actions).
1) Continued to hold and just hope for some events (fare increase? other sources of revenues?) to increase its share price again?
2) Average down another 15-20k when the price seems to reach its bottom?
3) Sell off and registered the loss (around 6K, 20%)


For 1), the dividends is paying lesser than CPF so basically the cost of holding is increasing as time goes by. Of course, dividends might go up in the future...
For 2), the above reason to preventing me from averaging down, unless the price dropped to $1 which means the yield will be 2.5% which is the same as CPF... provided the dividend don't drop also in the future...
For 3), it is painful but if that must be done to stem further loss... I shall do it.

At a crossroad now... Hoping to hear some advices from the more experienced people here before making a decision...

I have learnt a lot by reading the kind contributions made in the forum. I hoped sometime in the future, I will be knowledgeable enough to contribute back to this forum. Thank you very much in advance for you kind advices.