Why fare adjustment remains a threat to SMRT's revenue growth

Isn't there any end to it yet?

According to CIMB, revenue rose 5.3% yoy, thanks to the strong ridership in Singapore. However, with relentlessly higher operating costs, 2QFY3/14 profit was dragged lower by 57% yoy. 

Costs escalated in several business segments. The large jump in costs was the result of a sharper rise in staff costs (+27% yoy), wage adjustment and higher headcount.

Here's more from CIMB:

We increase all the key operating expenditure assumptions, although we think that staff costs should hover around this level for the rest of the year (c.40% of revenue). SMRT has proposed to pay an interim dividend of 1 Sct/share, a significant jump in payout ratio in this case.

We believe the risk of further dividend cuts is now less of a concern given the more robust cash flow structure.

Fare adjustment remains a problem and revenue growth will still lag behind cost inflation. We believe that SMRT is making inroads with regulators regarding the accounting of asset transfers under the new rail-financing framework.

Once this is resolved, the end result will be predictable cash flows and a more sustainable financing model, which will alter the fate of the company. Until then, the stock may continue to underperform.