Why Singapore transport sector will long remain a duopoly

Threat of new entrant "non-existent", says OCBC.

Despite flickers of rhetoric from the Land Transport Authority that there could be new competition entering the industry, OCBC said that this is "unlikely to occur in the medium term" especially given the fact that this idea has been floated since 2008 without any significant progress.

Here's more from OCBC:

Recent sell-off by SLF re-ignite concerns. The recent partial stake sell-off by ComfortDelgro’s major shareholder, the Singapore Labour Foundation, re-ignited concerns over the future of SG’s public transportation sector and by extension, ComfortDelgro and SMRT. While the LTA recently re-iterated the possibility of competition in the industry, it is unlikely to occur in the medium term.

Threat of new entrant non-existent at this point. The possibility of opening up the basic bus service industry to competition has been floated by the government since 2008 but it has remained as status quo since then. While the recent announcement over the funding and construction of a second bus depot by LTA (a key infrastructure for bus operations) seems like a step in the right direction, it was really driven by necessity resulting from additional buses under the Bus Service Enhancement Programme (BSEP).

Gov has to decide balance between fare increases & subsidies. Ultimately, the government has to decide the balance between fare increases and the amount of subsidies to grant. Both PTOs are experiencing widening operating losses for their core SG bus operations as fares have failed to keep pace with operating expense increases and government subsidies are strictly profit-neutral. Either fares are allowed to increase to match the growth in operating expenses or further subsidies have to be given (i.e. no longer be profit neutral).

Fare review committee decision more important for near-term. The 13-member fare review committee convened last year has yet to reveal its recommendations but the street has already priced in some level of increase. If the decision is delayed further, we could see continued losses for both PTOs and even asset impairments for SMRT.

Downgrade sector to NEUTRAL. Back at the end of 2012, we had upgraded the land transportation sector to OVERWEIGHT as we had anticipated more supportive measures for the PTOs and a quicker implementation of a longoverdue fare increase. However, these developments had failed to materialize and operating losses continued to widen. Therefore, we downgrade the sector to NEUTRAL in light of the near-term operational challenges for SG. That said, we do not expect further deterioration in the share prices of both ComfortDelgro and SMRT as most of the weaknesses should have already been priced in by the market. Maintain our HOLD ratings on both SMRT [HOLD; FV:S$1.45] and ComfortDelgro [HOLD; FV:S$1.95] although we favour the latter for its more attractive overseas ventures.