ComfortDelgro's SBS Transit wins 3rd bus package tender

Tender price was at $480.3m for a 5-year deal.

The Land Transport Authority announced the results of the third bus package (Seletar Bus Package) on 19 April 2017; and this was awarded to SBS Transit (SBST), a subsidiary of ComfortDelGro (CD), according to DBS Equity Research.

SBST's tender price was at S$480.3m for the 5-year contract. The bid was the lowest among the ten bids received. The contract value includes the one-off pre-operation costs, total service fee and lease charges for assets provided by LTA.

However it excludes adjustments for inflation, changes in wage levels and fuel costs, incentive payments and service variations.

Here's more from DBS Equity Research:

There are a total of 26 bus services within the Seletar Bus Package, of which two will be new services. Of the remaining 24, SBST is currently operating 13 services, while SMRT currently runs the other 11 services. The bus services will be handed over to SBST in five tranches from 1Q of 2018 to smoothen the transition process.

As per the earlier two contracts awarded, this tender underwent a two-envelope tender approach put in place by the LTA. The two-envelope approach included factors such as quality and price with greater weightage on the former.

We had earlier envisaged that the three contracts put up for competitive tender would be won by non-incumbents, given the drive towards a more vibrant and competitive environment. With SBST having clinched this latest contract, that leaves the bus contract with four operators, the other three being SMRT, Tower Transit and Go-Ahead.

SBST and SMRT had submitted the lowest and second lowest bids respectively, which was not surprising given their incumbent status. This was a departure from the second tender (for Loyang Bus Package) where SBST and SMRT submitted the fourth and sixth lowest bids.

We believe this could be due to more certainty on the operations, given that this tender is the only one closed after the transition to the contracting model on 1 September 2016.

With the phased transition and with it only taking place from 2018, we are keeping our forecasts unchanged for now. That said, we estimate that this should only have an impact of c.1-2% to our forecasts.

While the market skepticism over its taxi operations could linger for a while, we believe its stands out as a stronger party among the taxi operators to weather the headwinds. Furthermore, the implementation of tighter regulations on private hire cars from 1 July should help to level the playing field.