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

I do not know when or if it happens what would be the magnitude of SMRT’s recovery, but I doubt it will ever get back to the good old days of double digit profit growth yearly or ever increasing dividends which are beyond the country’s general inflation. Most commenters are analyzing SMRT from a financial business and management perspective, but I wish to point out that SMRT’s fate is largely intertwined with politics and society and any analysis must take into account factors beyond that of normal businesses.

The greatest circumstance that will direct SMRT’s fate has more to do with how citizens perceive the social compact of a PTO with society at large than technical details like who is the CEO, what is the pricing mechanism, are they opening more retail space, how much is the debt, financial ratios etc. To me such technicalities are inconsequential and serve as nothing more than short term distractions. In the past, the public has been generally apathic to SMRT’s profits just as they were to public servants’ salaries, but that is clearly now no longer the case.

We have experienced significant changes in political dynamics, awareness of the citizenry to public issues and increasing doubts on Singapore’s state capitalistic model. SMRT profits to me can be easily managed within a tight band by the government. Besides the most obvious avenue through the setting of fares, there are countless indirect ways for various government organizations to channel revenue to/from SMRT while maintaining a facade of an arm's length transaction. The important thing is, how much does the government think SMRT should earn? This is in large part dependent on the nation’s mood and appetite for a privatized critical public good. Right now it doesn’t look good in the nearterm, but once the emotions die down and service/quality levels improve gradually, the public will hopefully be more rational in its view on PTOs.

My gut sense is that SMRT will in the long run be generating returns somewhere higher than inflation and lower/ near to WACC on a stabilized basis. This is a good balance between being palatable to the public while giving decent enough risk controlled returns to investors. Many institutions are probably betting on this long term result as well, which explains the price hovering at a rate that seems too high for SMRT’s current performance and yet still substantially below that of the good old days.

(04-11-2013, 10:11 AM)Ben Wrote: [ -> ]

(03-11-2013, 05:21 PM)cfa Wrote: [ -> ]What can we expect from a management team make up by former army regulars ?
Good army gen= good businessmen ???
Yes sir , no sir ???

You seems to suggest that army general makes bad businessmen to me, and an organisation run by ex general will have followers that are basically "yes" man type. I hope I am wrong in reading your post. There are many successful companies run by people with military background, though they are not so successful ones. Our PM and some cabinet ministers were ex generals too.

I think SMRT at this stage needs some form of a tighter control and discipline similar to what's in the army. Not long ago, Desmond Kuek was interviewed in CNA, and IMO he is an action and driven man tasked to do the job many would shun away. At the minimum, I think he can communicate better with our transport minister who is himself a ex army guy.

I am not so negative with SMRT now, in fact I am seeing value emerging in this company. To me, SMRT is similar to a "too big to fail" organisation. If we can see beyond this dark period, good times will come for SMRT. Just my 2c.

I share your view on the ex-army managers.

In others' posts, ROE was used instead of ROA. Using ROA as a benchmark is more appropriate, IMO. FYI, ROA of around 10% is the performance before the recent "service disruption crisis" i.e before FY2012.

BTW, one of the impending changes for public transport is the "asset-light" model, which mean the gov will bear most of the capex. It will change the capital structure of the company, thus the ROA benchmark might become irrelevant in due course.

I think the company still has "chance", but not till we have more certainties, IMO

(not vested)

(04-11-2013, 10:49 AM)mobo Wrote: [ -> ]I do not know when or if it happens what would be the magnitude of SMRT’s recovery, but I doubt it will ever get back to the good old days of double digit profit growth yearly or ever increasing dividends which are beyond the country’s general inflation. Most commenters are analyzing SMRT from a financial business and management perspective, but I wish to point out that SMRT’s fate is largely intertwined with politics and society and any analysis must take into account factors beyond that of normal businesses.

The greatest circumstance that will direct SMRT’s fate has more to do with how citizens perceive the social compact of a PTO with society at large than technical details like who is the CEO, what is the pricing mechanism, are they opening more retail space, how much is the debt, financial ratios etc. To me such technicalities are inconsequential and serve as nothing more than short term distractions. In the past, the public has been generally apathic to SMRT’s profits just as they were to public servants’ salaries, but that is clearly now no longer the case.

We have experienced significant changes in political dynamics, awareness of the citizenry to public issues and increasing doubts on Singapore’s state capitalistic model. SMRT profits to me can be easily managed within a tight band by the government. Besides the most obvious avenue through the setting of fares, there are countless indirect ways for various government organizations to channel revenue to/from SMRT while maintaining a facade of an arm's length transaction. The important thing is, how much does the government think SMRT should earn? This is in large part dependent on the nation’s mood and appetite for a privatized critical public good. Right now, it doesn’t look good in the near to mid term.

My gut sense is that SMRT will in the long run be generating returns somewhere higher than inflation and lower/ near to WACC on a stabilized basis. This is probably a good balance between being palatable to the public while giving decent enough risk controlled returns to investors. Many institutions are probably betting on this long term result as well, which explains the price hovering at a rate that seems too high for SMRT’s current performance and yet still substantially below that of the good old days.

We shouldn't fall into a trap that LTA/MOT is the only price setter as regulator. It sound like a policy in a planned economy.

I agree that LTA/MOT is able to set the rules, but the price will be set by market competition. If market players are not agreeable to a price, there is no way for LTA/MOT to impose on them.

Of course, if market players feel that it is still feasible to operate with profit close to WACC, we, as commuters, are most than happy to hear that, but I doubt it will.

(04-11-2013, 11:09 AM)CityFarmer Wrote: [ -> ]

(04-11-2013, 10:49 AM)mobo Wrote: [ -> ]I do not know when or if it happens what would be the magnitude of SMRT’s recovery, but I doubt it will ever get back to the good old days of double digit profit growth yearly or ever increasing dividends which are beyond the country’s general inflation. Most commenters are analyzing SMRT from a financial business and management perspective, but I wish to point out that SMRT’s fate is largely intertwined with politics and society and any analysis must take into account factors beyond that of normal businesses.

The greatest circumstance that will direct SMRT’s fate has more to do with how citizens perceive the social compact of a PTO with society at large than technical details like who is the CEO, what is the pricing mechanism, are they opening more retail space, how much is the debt, financial ratios etc. To me such technicalities are inconsequential and serve as nothing more than short term distractions. In the past, the public has been generally apathic to SMRT’s profits just as they were to public servants’ salaries, but that is clearly now no longer the case.

We have experienced significant changes in political dynamics, awareness of the citizenry to public issues and increasing doubts on Singapore’s state capitalistic model. SMRT profits to me can be easily managed within a tight band by the government. Besides the most obvious avenue through the setting of fares, there are countless indirect ways for various government organizations to channel revenue to/from SMRT while maintaining a facade of an arm's length transaction. The important thing is, how much does the government think SMRT should earn? This is in large part dependent on the nation’s mood and appetite for a privatized critical public good. Right now, it doesn’t look good in the near to mid term.

My gut sense is that SMRT will in the long run be generating returns somewhere higher than inflation and lower/ near to WACC on a stabilized basis. This is probably a good balance between being palatable to the public while giving decent enough risk controlled returns to investors. Many institutions are probably betting on this long term result as well, which explains the price hovering at a rate that seems too high for SMRT’s current performance and yet still substantially below that of the good old days.

We shouldn't fall into a trap that LTA/MOT is the only price setter as regulator. It sound like a policy in a planned economy.

I agree that LTA/MOT is able to set the rules, but the price will be set by market competition. If market players are not agreeable to a price, there is no way for LTA/MOT to impose on them.

Of course, if market players feel that it is still feasible to operate with profit close to WACC, we, as commuters, are most than happy to hear that, but I doubt it will.

LTA is but one of the many players, SMRT profitability dependency is much more than just transportation mechanics. There are many other ways for the government to manage SMRT profitability than just getting LTA to set prices.

A few tools that have been used by the government in the past to "assist" SMRT:

1) Sports Hub master tenancy
2) Developing retail space, note that SMRT has never disclosed how exactly the agreement works with the landlord. All we know is that SMRT does not own the space and is in charge of developing space and collecting rents
3) Very cheap debt priced out, don't know who are the major note holders
4) Bus stop advertising sharing mechanism, seems extremely generous based on limited disclosure
5) Capex sharing mechanism

To me SMRT business model works more like:

1) Government sets X% return
2) SMRT submits proposal of how to get X%, may or may not be able to achieve X%
3) Government assess the critical public pieces and sets things like fare, service quality standards, maintainance, capex expansion etc.
4) SMRT reassess and presents a scenario of (X-Y)%
5) Government squeeze SMRT to run more efficiently at (X-Y+Z)% level, then it "tops up" through other avenues to try and get (X-Y+Z)% + top up% to as close as X% as possible

Most people are paying way too much attention to steps 3 and 4 and not looking at the whole process in totality. The transportation industry might not be a command economy, but that doesn't mean SMRT as a Group is not a "command economy", it is afterall a subsidiary of the Ministry of Finance with its Board comprising of Directors representing various interest groups.

Fare review report is out - details should be out next week.

Let's see what it brings.


*****************
SINGAPORE: The Ministry of Transport (MOT) has received the Fare Review Mechanism Committee (FRMC) report.

In a statement from MOT, Transport Minister Lui Tuck Yew thanked the FRMC Chairman Richard Magnus and committee members for the thoughtful and comprehensive report to review the adjustment mechanism and the concession schemes.

MOT will study the FRMC report in detail and will give a response next week.

The FRMC was appointed by the government last year to review the framework for public transport fare adjustments.

The committee was scheduled to present its recommendations early this year but the submission of its findings was delayed. The FRMC had said it needed time to gather quantitative feedback.

(04-11-2013, 12:34 PM)AlphaQuant Wrote: [ -> ]Fare review report is out - details should be out next week.

Let's see what it brings.


*****************
SINGAPORE: The Ministry of Transport (MOT) has received the Fare Review Mechanism Committee (FRMC) report.

In a statement from MOT, Transport Minister Lui Tuck Yew thanked the FRMC Chairman Richard Magnus and committee members for the thoughtful and comprehensive report to review the adjustment mechanism and the concession schemes.

MOT will study the FRMC report in detail and will give a response next week.

The FRMC was appointed by the government last year to review the framework for public transport fare adjustments.

The committee was scheduled to present its recommendations early this year but the submission of its findings was delayed. The FRMC had said it needed time to gather quantitative feedback.

Ha! Ha!
The flag down fare of taxi has just increased and only very little noises have been heard. So what better time to increase SMRT's fare? Singaporeans will always say or think "BOH PIAN"

(04-11-2013, 10:11 AM)Ben Wrote: [ -> ]

(03-11-2013, 05:21 PM)cfa Wrote: [ -> ]What can we expect from a management team make up by former army regulars ?
Good army gen= good businessmen ???
Yes sir , no sir ???

You seems to suggest that army general makes bad businessmen to me, and an organisation run by ex general will have followers that are basically "yes" man type. I hope I am wrong in reading your post. There are many successful companies run by people with military background, though they are not so successful ones. Our PM and some cabinet ministers were ex generals too.

And the country have been in general decline since, despite glowing GDP numbers.

(04-11-2013, 10:18 AM)Porkbelly Wrote: [ -> ]The conclusion is....


SMRT is... ...too big to fail.

Also too big to prosper.

(04-11-2013, 11:36 AM)mobo Wrote: [ -> ]LTA is but one of the many players, SMRT profitability dependency is much more than just transportation mechanics. There are many other ways for the government to manage SMRT profitability than just getting LTA to set prices.

A few tools that have been used by the government in the past to "assist" SMRT:

1) Sports Hub master tenancy
2) Developing retail space, note that SMRT has never disclosed how exactly the agreement works with the landlord. All we know is that SMRT does not own the space and is in charge of developing space and collecting rents
3) Very cheap debt priced out, don't know who are the major note holders
4) Bus stop advertising sharing mechanism, seems extremely generous based on limited disclosure
5) Capex sharing mechanism

To me SMRT business model works more like:

1) Government sets X% return
2) SMRT submits proposal of how to get X%, may or may not be able to achieve X%
3) Government assess the critical public pieces and sets things like fare, service quality standards, maintainance, capex expansion etc.
4) SMRT reassess and presents a scenario of (X-Y)%
5) Government squeeze SMRT to run more efficiently at (X-Y+Z)% level, then it "tops up" through other avenues to try and get (X-Y+Z)% + top up% to as close as X% as possible

Most people are paying way too much attention to steps 3 and 4 and not looking at the whole process in totality. The transportation industry might not be a command economy, but that doesn't mean SMRT as a Group is not a "command economy", it is afterall a subsidiary of the Ministry of Finance with its Board comprising of Directors representing various interest groups.

I am glad that the list of gov "assistance" doesn't has the oversea project management and engineering consultancy businesses.

I agree that LTA/MOT have the full control on the licensing contract, thus influence the contract value, but it is the total package that counts. I really doubt those "assistance" listed will be part of the contract, except the (5). For SMRT to bid base on those not in the contract, is like to participate an IPO, not with facts in prospectus, but "hopes" in analyst reports.

The process listed seems a private negotiation between LTA/SMRT, instead of LTA/PTOs, which might become an issue after the regular AG audit

A RFP is likely, before the contract is ready for bidding, but the process will not like the one described, IMO

(not vested)

if SMRT drops to $1.00 I will load big big

if they pay like 2.5 cents dividends, 2.5% yield still decent while waiting for the recovery