Fears of higher staff costs escalate for SMRT

The 700-head target entails downsides.

According to CIMB, SMRT expects staff costs to rise from current levels due to higher headcount and wage inflation.

Here's more from SMRT:

It plans to increase its staff strength by approximately 700 in FY13, of which we estimate only 192 positions have been filled. Further recruitment will elevate staff costs over the next few quarters.

The group has slipped into a net debt position (S$28.6m or 4% net gearing). Net gearing is expected to increase for the rest of the year. Recent fundraising via
fixed rate notes and its bond issuance could lift net gearing to 60%, by management’s estimate.

The group does not have a formal gearing target. Circle Line (CCL) ridership remains stable at 353,000. The line is still unprofitable but the opening of new malls and facilities along the CCL (e.g. Star Vista at Buona Vista) will lift ridership.

During his maiden analyst briefing, CEO Mr Desmond Kuek highlighted asset upgrades and improvement of service reliability as his priorities. These will elevate opex and capex in the near term.