TRANSPORT & LOGISTICS | Krisana Gallezo-Estaura, Singapore

How could SMRT's pay hike for non-exec staff hurt earnings?

Analysts see up to 12% staff cost increase.

As part of the new collective agreement with the National Transport Workers’ Union, SMRT’s wage increments will target non-executive staff but 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.

Here's what analysts had to say:

Carmen Lee, Head of Research, OCBC Investment Research 

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.

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.

Lee Wen Ching, analyst, CIMB 

This development cements our thesis of margin compression from operating cost inflation. 

The wage hike aims another blow at SMRT’s profitability. Margins have been compressed by high staff , repair and maintenance costs. EBIT margins  fell to a low of 11.4% in the recent  quarter. We see no signs of a  reprieve
As we have already factored in a 16% or S$54m increase in FY13 staff c osts, we do not see the need to adjust our estimates. To put these numbers in  perspective, the S$10m increase represents 2.5% of our FY13 staff cost estimate.

SMRT's wage hike comes in the wake  of bus driver strikes and talk of inferior pay vs.industry norms. We do not expect ComfortDelGro to follow suit with a blanket pay review,  as this exercise appears to realign SMRT's pay with the industry's,  which presumably includes SBS Transit.

Wen Jie Chan, analyst Nomura Research

We raise our staff cost estimates on the back of headcount growth and higher salary assumptions post the Wage Review 2013 announced by SMRT.

On the basis that the group receives adjustments under the government’s wage credit scheme, we expect staff cost to increase by ~12% y-y in FY14F, after adjusting for a one-off payment in FY13F.


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