Expect 5% annual transport fare hikes till 2016

Before slowing to 2.7% yearly increases.

"With an estimated 8% of accumulated fare revision not implemented in 2012/13, we expect significant fare hikes of 5% p.a. over the next three years, before reverting to a more normalised annual rise of 2.7%," said Maybank Kim Eng in its latest land transport sector report.

"Coupled with our long-term ridership forecasts of 2.3% p.a., we expect sector revenue to be 43% higher in 2018," it added.

The research firm further noted that the Downtown line (DTL) will open in three stages over the next four years.

The resulting traffic cannibalisation once DTL Stage 2 operates in 2016 would have a "significant" negative impact on SMRT, and Maybank believes the market has largely ignored this negative implication and expect growing concern in the years ahead.

"We see the current business models for the PTOs as unsustainable and expect imminent changes. We also expect a transition to the new rail financing (NRF) framework for all existing rail lines over the next few years," reckoned Maybank.

This led the research firm to prefer ComfortDelGro among land transport stocks, given the fact that it is "anchored by stable acquisition-led earnings growth from its overseas units" and that comfortDelGro's valuation remains more attractive than SMRT.