Here’s why analysts are pessimistic about SMRT’s near-term growth

Expenses are skyrocketing while revenue wanes.

Analysts are adopting a cautious outlook for SMRT’s operations, as its growth outlook in the near future is expected to be unexciting.

“While SMRT has stated progress is being made on the rail reform, we prefer to wait for further clarity over the uncertain timeline and structure of the rail reform, and opt not to factor in any assumption at this point in time,” stated a report by OCBC.

OCBC notes that SMRT management is bracing for downward pressure on SMRT’s revenue on two fronts. Firstly, management guided for a $5 to 6m crash in the last quarter of FY16 on back of potential rider cannibalisation from the launch of Downtown Line 2 (DTL 2). Secondly, 1.9% fare reduction is expected to weigh down revenue growth for CY16.

Moreover, the transport operator’s management has also guided for rail-related maintenance expenses to skyrocket to 50% of rail revenue by 4QFY16, from 43% in 3QFY16.
OCBC also expects the preparation for Tuas West Extension, which is opening in CY16, to pile onto the company’s expenses.

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