Fare hike seen to have little impact on SMRT, ComfortDelGro stocks
- POSTED: 18 Jan 2014 00:19
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The fare increase for public transport will have little impact on the stocks of land transport firms SMRT and ComfortDelGro. Analysts say the higher fares will unlikely translate to higher profits for these firms.
SINGAPORE: The fare increase for public transport will have little impact on the stocks of land transport firms SMRT and ComfortDelGro.
Analysts have said the higher fares will unlikely translate to higher profits for these firms.
This resulted in stock analysts keeping the "sell" calls that can potentially weigh down the share prices of the two transport companies.
Currently, analysts have 11 sell calls on SMRT shares, versus one hold and one buy.
ComfortDelGro, which has greater overseas exposure and a more lucrative taxi business, is better favoured. It has nine buy ratings, two hold calls, and three sell calls.
Singapore's public transport watchdog has approved a fare increase of 3.2 per cent for the year.
This means that from April, adult commuters will pay between 4 and 6 cents more per journey on buses and trains.
Analysts said the fare increase will not boost profitability for the transport providers. This is because the increase will just about offset the rising maintenance and labour costs.
Edison Chen, investment analyst at DMG & Partners Research, said: "We also know that there is a provision. Both of the operators have to share 20 to 25 per cent of their profits. It will be put into a fund which will be used to offset costs for some of the needy commuters. So actually, the net impact will be a 2.5 per cent increment."
The fare increase fell short of market expectations of a 5 per cent rise. Earlier, SMRT and ComfortDelGro had submitted proposals to hike fares by 6.6 per cent.
As a result, most analysts kept their downbeat forecasts, especially for SMRT.
Ng Kian Teck, lead analyst at Voyage Research, said: "In terms of profitability, we may see that going back to levels in the year before, or (hover) at the current levels. It won't have a very big impact, so we are not seeing a very big boost in terms of share price - it will probably stay flat over the next six months."
Maybank Kim Eng said that "without radical reforms, Singapore's land transport business model is unsustainable".
But the changes, such as a new rail financing framework and the adoption of a cost-plus public bus model, can only happen from 2016 onwards, when the current operating licences expire.
In trading on Friday, SMRT shares closed 2.15 per cent higher at S$1.19, while ComfortDelGro shares lost 1.02 per cent to close at S$1.945.