Singapore Land Transport Sector – Waiting for Better Clarity Over Reforms
· Growth driven by taxi, rail and bus segments - 4QCY15 revenue for the two Public Transport Operators (PTOS), ComfortDelGro Corporation (SG:C52)
and SMRT Corporation (SG:S53)
, continued to be driven mainly by Bus, Rail and Taxi segments, with bus and rail revenue growth largely due to ridership growth while taxi was due to higher rental income.
· Structural reforms are the key catalysts - As we highlighted before, there are four key areas of focus for the government: 1) addressing regulations of private car-hire services, 2) transition to the new bus government contracting model (GCM), 3) improving rail reliability, and 4) transition to the new rail financing framework (RFF). Out of these four areas, we think the transition to GCM and RFF are the more significant ones for CDG and SMRT, respectively.
· Maintain NEUTRAL for now - We maintain NEUTRAL on the sector. Our top pick within the sector is CDG, given that it is the key beneficiary of the transition to GCM with ~75% market share in Singapore’s public bus industry. For SMRT, we remain cautious as increasing expenses will likely weigh on its earnings.