23 June 2014

SMRT Group Annual Report (FY2014) Summary - June 2014

Company Background (Source: Company Annual Report)
SMRT Corporation Ltd (SMRT) is the leading multi-modal public transport operator in Singapore. SMRT serves millions of passengers daily by offering a safe, reliable and comprehensive transport network that consists of an extensive MRT and light rail system which connects seamlessly with its island-wide bus and taxi operations.

SMRT also markets and leases the commercial and media spaces within its transport network, and offers engineering consultancy and project management as well as operations and maintenance services, locally and internationally.

SMRT is one of the leading public transport providers in Singapore besides Comfort Delgro, which operates bus (own SBS Transit), light rail and taxi services in Singapore. SMRT is focused more on island business as compared to Comfort Delgro, so it is certainly a better benchmark for public transport against other competitors in SGX Mainboard.

The Group FY2014 performance was largely lacking behind, with profits were recorded at $61.9 million on the back of revenue of $1.16 billion. The profit margin was a mere 5.3%.

Whilst revenue and ridership continue to increase, our profits remain depressed because of increasing operational costs and depreciation arising from capital expenditures, primarily to meet our regulatory obligations. Operating profit in FY2014 was $26.0 million lower than the last FY as a result of declining
rail operating profit, and operating costs outpacing fare revenue growth.

Overall, the group's fare business suffered a loss of $25.0 million for the first time. This loss was mitigated by lower Bus operations losses which declined by 10.6 percent on a year-on-year basis. Profit from Non-Fare business however increased 12.4 percent, due largely to increase in profits from Taxi, Commercial and Engineering Services.

Outlook

SMRT has intensified discussions with the authorities in the past year and submitted a series of proposals for a new sustainable rail operating and financing framework. The group will continue to work with the authorities in the coming year towards early implementation of the changes.

Even as they work through these proposals with the authorities, they need to maintain our ongoing efforts to address the current business challenges. The April 2014 fare revision will have a positive impact on our revenue in the upcoming financial year. (Jack: Government has agreed to run a scheme where bus operators would lease instead of own the buses from government so that they could focus on operating business via asset light model. It would definitely change the landscape and hopefully we would enjoy better and consistent public transport service in Singapore)

However, it will not fully defray the increases in their operating costs, and it is therefore important that we continue with efforts to extract further efficiency gains across the company. They are also pursuing business growth to deliver shareholder value by adopting a resourceful and diversified approach to explore opportunities in public transportation and related commercial opportunities, locally and overseas

Group Financial Highlights


EPS has decreased from 10.7 cents on FY2010 to 4.1 cents on FY2014, so did DPS drop from 8.5 cents on FY2010 to 2.20 cents on FY2014. It comes to a critical point to SMRT where they would need to reverse the losses for light rail transit and bus operating business. 

The group also suffered from negative free cash flow for the first time in 5 years period. You would also notice that the cash & cash equivalents dropped to around S$150M. Part of the reasons were due to the huge capex incurred for recent years. 

The debt level of the group also increased to 0.60 times (Net Gearing) compared to Net Cash position 2 years ago. ROE and ROA of the group also seen dropping since few years back. From here, we would tell that SMRT is still not a very defensive counter as it would still require a huge capex to repair equipment & enhance the operating efficiency. Hopefully with the new business model in place, the group would enhance its financial position and citizens could enjoy a better ride in future. 

Something to note:
  1. Singapore was trying to introduce driver-less bus here. The government may run a trial in Sentosa Island to test on the feasibility and efficiency of driver-less vehicle in the island. It is a good move as the driver wages was increased quite substantially to attract more locals to take up job as driver as we cannot have a good service without good drivers when new and more buses arrive. 
  2. When Thompson Line is linked to JB in few years time (to be completed by year 2018 - 2021), I think the volume of public transport ridership would increase as there are hundred of thousands of people taking private transports to Singapore from Johor Bahru.  Nonetheless, it is hard to convince private car owners to take public transports unless the benefit they enjoy taking public transports is bigger than taking private cars in Singapore. 

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