Derailed: SMRT loses Downtown Line tender

LTA had dismissed speculation that SMRT's recent security breach had affected its bid.

With SBS Transit being awarded the operating licence, OCBC Investment Research said SMRT lost “the opportunity to add as much as 14,000 square metres of gross commercial space.”

OCBC Investment Research noted, “The setback should force SMRT to enhance its operational capabilities and improve its public image, especially since future tenders for the other planned expansion lines could be open to other rail operators.”

Here’s more:

Setback for SMRT. While revenue yield projections for the DTL are too early to be assessed, at first glance the line still represents decent growth opportunities in terms of rental revenue. The loss of the DTL tender denied SMRT the opportunity to add as much as 14,000 square metres of gross commercial space. Furthermore, the anticipated daily ridership of the line is estimated at more than 500,000 initially, and could potentially increase to more than 700,000 over time.

SMRT looking ahead. Although LTA had dismissed speculation that SMRT's recent security breach had affected its bid, the setback should force SMRT to enhance its operational capabilities and improve its public image, especially since future tenders for the other planned expansion lines could be open to other rail operators. The two lines announced so far are the Thomson and Eastern Region MRT Lines, which are due to built by 2018 and 2020, respectively.

Temporary sell-offs anticipated. As a recap, for FY12, SMRT is expected to experience cost pressures from higher operating expenses upon full commencement of the Circle Line (CCL) operations from Oct this year as well as increased staff and energy costs. However, SMRT could receive some reprieve from the easing of energy prices going forward. While there is no impact on SMRT's earnings from the loss of the tender, we anticipate some temporary selling pressures following this announcement.

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