Fare cuts will further derail SMRT’s profitability prospects

While CDG will be relatively uncathed.

SMRT will bear the brunt of the upcoming rollback on bus and train fares, a report by CIMB revealed.

“The announced fare reduction would have a negative impact on the profitability and valuations of both CDG and SMRT, assuming that everything else holds equal,” CIMB said.

CIMB said that in the event of a 1.9% fare cut, SMRT’s core earnings per share (EPS) estimates for FY16 to FY18 will be trimmed by 4.1%, 11.5% and 8.6%.

Meanwhile, CDG’s FY16 to FY18 core EPS estimates will be cut by a more marginal 2.4%, 0.7% and 0.8% because it is less exposed to the domestic transport sector.

“The potential impact of fare reductions would hit the core EPS estimates and the valuation of SMRT harder than CDG. The sector remains an overweight, with the structural reform being a key potential catalyst. CDG is our top pick for its business diversification, overseas growth initiatives and stronger balance sheet,” CIMB said.