Worst-ever rail breakdown could have dire results for SMRT’s bottom line

Profit will be hit by free rides and fines.

The massive rail services breakdown which impacted some 250,000 commuters on July 7 could have dire results for public transport operator SMRT’s bottom line.

CIMB analysts Roy Chen and William Tng warned that SMRT’s FY16 profit could take a hit not only from the free bus services that it provided but also from potential fines.

“We estimate that the breakdown on 7 Jul and free travel on 8 Jul could lower SMRT's 2QFY16 rail revenue by S$1.8m-3m or 1.8-3% of our FY16 net profit forecast of S$101m for SMRT,” they noted.

“SMRT could be fined for the service disruption. In 2014, it was fined a total of S$1.6m for four rail disruptions in 2013-14. In 2012, it was fined S$1m for two massive breakdowns in Dec 2011. Given the scale of the recent breakdown, we think a fine of S$1.5m-2m is possible,” they added.

They also said that the disruption underscores the need for SMRT to increase its repair and maintenance expenses for its ageing rail system, which will increase costs for the operator.