We estimate the impact of SMRT’s wage increments for non-executive staff (~60% of its workforce) and its ~2,000 bus drivers to cost an approximate S$34.8m/year (assuming full qualification of incentive payments) from FY14 onwards. While SMRT’s wage burden increases considerably, the bulk of the wage increments will theoretically qualify for some relief under the Government-proposed Wage Credit Scheme. Nonetheless, we lower our forecasts to incorporate the increase in staff costs, and our valuation falls to S$1.56 from S$1.71 previously. Despite a likely fare increase by end-May, ongoing restructuring by SMRT continues to yield pressure on operating expenses (i.e. wages and repairs/maintenance). Therefore, we are unlikely to see an inflection point emerging for the counter in the near-term, and shareholders will have to accept lower dividends as this restructuring proceeds. Maintain HOLD.
Wage increments for non-executive staff to bite
As part of the new collective agreement with the National Transport Workers’ Union, SMRT’s wage increments will target non-executive staff (excluding bus drivers), which amount to ~60% of its entire workforce or 4,400 staff, and will result in an immediate S$10m impact for 4QFY13. This amount includes a one-off market adjustment to realign salaries with industry standards as well as base salary revisions, which were effective from 1 Mar. Subsequently, SMRT could experience staff cost increases of up to S$30m/year. As for its ~2,000 bus drivers, SMRT intends to shift their compensation towards a single scheme, which will narrow the income gap between Singaporean and non-Singaporean drivers. Although no specifics were provided, we estimate a cost increment of at least S$4.8m/year to arise from this move.
Some reprieve from Wage Credit Scheme
Although there is a lack of clarity on the exact impact of the Government-proposed Wage Credit Scheme, SMRT will theoretically experience some relief (i.e. 40% of the applicable increases co-funded by the Government) as the majority of its non-executive staff earn below the S$4,000/month threshold – even after the revised wage schemes.
Forecasts lowered; pressures to sustain
We lower our forecasts to incorporate the increase in staff costs, and this lowers our FY13/14 PATMI considerably by 9% and 19% respectively. Whilst we maintain our 60% PATMI payout ratio, our DDM-derived value falls to S$1.56 from S$1.71 previously. Despite a likely fare increase by end-May, ongoing restructuring by SMRT continues to yield pressure on operating expenses (i.e. wages and repairs/maintenance). Therefore, we are unlikely to see an inflection point emerging for the counter in the near-term, and shareholders will have to accept lower dividends as this restructuring proceeds. Maintain HOLD.
As part of the new collective agreement with the National Transport Workers’ Union, SMRT’s wage increments will target non-executive staff (excluding bus drivers), which amount to ~60% of its entire workforce or 4,400 staff, and will result in an immediate S$10m impact for 4QFY13. This amount includes a one-off market adjustment to realign salaries with industry standards as well as base salary revisions, which were effective from 1 Mar. Subsequently, SMRT could experience staff cost increases of up to S$30m/year. As for its ~2,000 bus drivers, SMRT intends to shift their compensation towards a single scheme, which will narrow the income gap between Singaporean and non-Singaporean drivers. Although no specifics were provided, we estimate a cost increment of at least S$4.8m/year to arise from this move.
Some reprieve from Wage Credit Scheme
Although there is a lack of clarity on the exact impact of the Government-proposed Wage Credit Scheme, SMRT will theoretically experience some relief (i.e. 40% of the applicable increases co-funded by the Government) as the majority of its non-executive staff earn below the S$4,000/month threshold – even after the revised wage schemes.
Forecasts lowered; pressures to sustain
We lower our forecasts to incorporate the increase in staff costs, and this lowers our FY13/14 PATMI considerably by 9% and 19% respectively. Whilst we maintain our 60% PATMI payout ratio, our DDM-derived value falls to S$1.56 from S$1.71 previously. Despite a likely fare increase by end-May, ongoing restructuring by SMRT continues to yield pressure on operating expenses (i.e. wages and repairs/maintenance). Therefore, we are unlikely to see an inflection point emerging for the counter in the near-term, and shareholders will have to accept lower dividends as this restructuring proceeds. Maintain HOLD.
No comments:
Post a Comment