Transport operators go full speed ahead towards bright 2016

Thanks to a quickening pace of reforms.

The upcoming year is brimming with promise for Singapore land transport companies, according to RHB. Bus operators will enjoy benefits from bus assets sales, the taxi industry competition is expected to level, and rail reforms are looking likely by 2019.

ComfortDelGro (CDG) and SMRT are expected to come into some cash thanks to the sale of their bus assets to the government before the commencement of transition of bus operations to government contracting model by September next year.

CDG can look forward to a cash inflow of $710m in FY16 and SMRT $207m in FY17, thanks to the sale of non-Bus Service Enhancement Programme buses despite a 10% discount to book value.

Taxi operators can also breathe a sigh of relief as LTA is expected to launch regulations to rein in third party private-hire taxis, thereby easing the current elevated level of competition in the industry. Moreover, third party app Karhoo might be an additional boon for currently regulated taxis going against Uber, although Karhoo still needs to hurdle past a number of pre-existing conditions.

Meanwhile, RHB believes that LTA may be looking at transitioning the North South East West Line (NSEWL) to new rail financing framework (RFF) by end-2018 or early-2019. This is mainly due to two reasons—primarily, SMRT would have completed the capital expenses related to the renewal of NSEWL infrastructure. Secondly, SMRT’s liability to purchase Circle Line’s $1.1b operating assets from LTA in May 2019 may bog down its balance sheet. 

LTA could also offer some clarity on the transition to new RFF before the tender for Thomson-East Coast Line opens up in 2016-17.

On the flip side, RHB notes several key risks for the upcoming year such as lower-than-estimated margins for core bus operations under government contract, elevated levels of competitive intensity in the taxi industry, lower-than-estimated ridership for Stage 2 of downtown MRT Line and rail reforms not materialising.