Greener pasture overseas for land transport operators

Public transport group may experience no respite at home but better prospects abroad await, says UOB kay Hian.

According to UOB Kay Hian analyst Toh Yongrui, SMRT’s and CD’s domestic bus and rail businesses saw their operating margins contract to the lowest in five years, at 16.4% and 6.1% respectively.

Despite reasonable ridership growth for bus (+5.2-6.0% yoy) and rail transport (+8.6-13.2% yoy), revenue growth he said was not as strong due to lower average fares (-1.3-2.8% yoy).

Negative sentiment towards public transport operators, he said has been rising after the recent taxi fare hikes and increasingly frequent train service breakdowns.

“ While we expect energy, staff and maintenance costs to trend higher for public transport operators, we do not see substantial fare adjustments to help offset the incremental cost,” he said.
The analyst however noted of better prospects abroad for public transport operators, especially CD.

“ Compared with SMRT, CD’s operating margins have been more resilient, dropping from 12.1% in 2010 to 11.7% in 2011 (5-year average of 11.1%). CD’s UK and Australian businesses benefit from cost indexation contracts, which allow them to better manage rising operating costs. Better margins in overseas businesses help CD hedge against margin pressures at home,” he said.

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