SMRT to suffer S$30m staff cost hike per year

But here's where it could get relief.

According to OCBC Investment Research, SMRT could experience staff cost increases of up to S$30m/year. As for its ~2,000 bus drivers, SMRT intends to shift their compensation towards a single scheme, which will narrow the income gap between Singaporean and non-Singaporean drivers.

OCBC adds, although there is a lack of clarity on the exact impact of the Government proposed Wage Credit Scheme, SMRT will theoretically experience some relief (i.e. 40% of the applicable increases co-funded by the Government) as the majority of its nonexecutive staff earn below the S$4,000/month threshold – even after the revised wage schemes.  

Here's more:

As part of the new collective agreement with the National Transport Workers’ Union, SMRT’s wage increments will target nonexecutive staff (excluding bus drivers), which amount to ~60% of its entire workforce or 4,400 staff, and will result in an immediate S$10m impact for 4QFY13.

This amount includes a one-off market adjustment to realign salaries with industry standards as well as base salary revisions, which were effective from 1 Mar.

Although no specifics were provided, we estimate a cost increment of at least S$4.8m/year to arise from this move.

We lower our forecasts to incorporate the increase in staff costs, and this lowers our FY13/14 PATMI considerably by 9% and 19% respectively. Whilst we maintain our 60% PATMI payout ratio, our DDM-derived value falls to S$1.56 from S$1.71 previously.

Despite a likely fare increase by end-May, ongoing restructuring by SMRT continues to yield pressure on operating expenses (i.e. wages and repairs/maintenance).

Therefore, we are unlikely to see an inflection point emerging for the counter in the near-term, and shareholders will have to accept lower dividends as this restructuring proceeds.