Repair and maintenance woes add to SMRT’s headaches as headwinds mount

Higher maintenance standards are demanded from the rail firm.

The public transport operator is expected to continue its struggle with elevated maintenance costs as analysts expect costs will remain elevated to meet higher maintenance standards.

According to analysts from UOB Kay Hian, including staff costs relating to maintenance, expenses are expected to be close to eating up half of the firm’s revenue.

Meanwhile, near-term headwinds also remain for SMRT’s fare business, impacted by the 1.9 fare reduction as well as the commencement of the downtown line 2 (DTL2).

“The latter will have an impact on SMRT’s bus routes and rail line along the alignment of DTL2. While it is too early to determine the extent of DTL2’s impact on earnings, management guided for a potential revenue drop-off of S$5m-6m for both rail (80%) and bus (20%) operations for 4QFY16,” UOB Kay Hian said.

On the other hand, fuel costs have been fully hedged by the group until the end of the year.

“As for FY17, no hedging for diesel has been done, but discussions with suppliers are underway while the electricity tariff has been set up until Sep 16,” UOB Kay Hian said.