SBS Transit

[Nick]

SBS has been largely operating buses at a loss in recent years due to escalating costs and inability to raise fare prices. This is not sustainable in the long run hence the shift towards a gross contracting model where the operator is paid a fee to operate the route and cover the operating cost. In other words, under the new model, there is a greater likelihood of an operator running bus routes with a profit. Naturally, the assumption is that the tender price is financially sound!

This is a major difference between the two models hence it is not accurate to simply extrapolate the current financial year results. Even with the reduction in market share, the shift from being loss making with a larger market share towards running profitable routes with a smaller market share should lead to an improvement in results. Again, many assumptions have to be made at this stage since there isn't much concrete details to work with yet.

Hence, in my earlier post, I alluded that what is truly interesting is not how much money the incumbents are going to receive, but how will their P&L statement shape up in 2H 2016 onward. Honestly, nobody can give a straight answer for now since no details have been released. One can only speculate and run various models with different assumptions and see what pops up. 

(Vested)