Parliament casts doubt upon SMRT's rental and ad business
Rental and ads comprise just 10% of SMRT's revenue but it contributes 55% of total profit.
Here's from MayBank KimEng analyst Bernard Chin:
The COI had recommended for SMRT to pay more attention to engineering and transport aspects of the business. In addition, the Minister for Transport’s response to questions about the incompatibility of an operator’s profit-motive with that of running a reliable system added further uncertainty about SMRT keeping its retail rental and advertising businesses in the long term.
The Minister was quoted as follows:
“The COI, and I agree with them, felt that SMRT needed to pay more attention on the engineering aspects. Has there been an over-emphasis on the commercial aspects and should we strip it out from the operator all together? That probably is the gist of the question.’
A startling fact remains that although rental and advertising only comprises about 10% of total FY3/12 revenue, it contributes 55% of total operating profit. This leads us to believe that it is unlikely for SMRT’s non-core businesses to be ring-fenced from the operator, especially when some of the operator’s core transport segments like buses are making rather significant losses.