- Fare hike of 2.8% for rail & bus rides largely within expectations. Together with cheaper oil, could provide some relief to operators’ bottom lines.
- Land Transport not good mid-term proxy for oil-price movements because of fare-adjustment formula. Fares could be lowered by 1% next year.
- Remain Neutral on sector.
The Public Transport Council has announced a fare hike of 2.8% for bus and MRT rides from 5 Apr 2015. It arrived at this based on a 0.6% contraction in the sector’s fare-formula output plus a positive 3.4% carried over from its previous year’s exercise. Singapore’s two public-transport operators are also required to contribute a combined SGD13.5m to the Public Transport Fund: SGD5.5m from SBST (Not Rated) and SGD8.0m from SMRT. The money will be used for the needy. With a fare revenue pool of SGD1.7b pa, this fare hike will translate into higher gross revenue of SGD48.5m for the sector. It implies net benefits of SGD35m, SGD16.4m accruing to SBST and SGD18.6m to SMRT.
No surprise, limited reprieve
The quantum of the hike was expected, having been flagged by Transport Minister, Lui Tuck Yew, during a recent parliamentary reply. Allied with lower oil prices, this hike should provide some near-term margin relief for operators. However, we do not think Land Transport is a good proxy for oilprice movements in the medium term. This is because the sector’s fare-adjustment formula^ already takes into account changes in energy prices. In fact, in the same parliamentary reply, Minister Lui signalled that fares could be reduced by 1% in the next review.
This could mute benefits for the operators.
Remain Neutral on the sector.
^Fare adj. formula = 0.4*cCPI + 0.4*WI + 0.2*EI – 0.5%.
cCPI= Core Consumer Price Index, WI= Wage Index, EI= Energy
Index.
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