First a quick look at the changes in policy introduced to improve public transport in Singapore. These changes have opened up public-transport to competition while ensuring operations remain financially viable.
LTA introduced the revenue-sharing model for Public Transport
The changes were triggered by the incidents on the North-South MRT line in December 2011 when trains broke down on two occasions with passengers trapped inside. The scale of the disruption and SMRT’s clumsy response to the events jolted the nation. A public-enquiry that investigated the incidents found they were caused by inadequate maintenance. Although there was no suggestion it was the case, the incident showed how a corporation putting profits ahead of maintenance could paralyze the rail network.
The government recognized the need for change and a year later LTA announced the transition to an asset-light, revenue-sharing model for public transport operators. In this model, LTA as the Owner owns the assets, whether bus or rail; while the Transport Operators operate and maintain the assets. Consistent with the Owner/Operator model, LTA will retain the fare revenue and pay the Operators a service fee.
SBS Transit as the operator of the largest fleet of public buses in Singapore is the biggest beneficiary of the transition to Bus Contracting Model.
SBS Transit: Bus, Rail and Moove
The Bus Contracting Model (BCM) came into effect in September 2016. SBS Transit as the operator of the largest fleet of public buses in Singapore, some 4,000 of them, is the biggest beneficiary of the new policy. Notwithstanding the loss of Loyang Package, the service-fee model will deliver an instant fillip to the Bus segment’s hitherto weak earnings.
SBS operates the North-East MRT and the Punggol and Sengkang LRT Systems. Ridership on their trains has been increasing annually by an average of 7% for NEL, and 12% for the LRTs. In contrast to Bus, Rail has been consistently profitable although profits have remained flat since 2012 when SBS started staffing up for the Downtown Line (DTL).
Apart from the bus and rail operations, SBS also owns an in-house advertising agency – Moove Media. Advertising is a surprisingly good fit to their portfolio as evident from its healthy profits.
SBS Transit: BCM and DTL will boost profits to record high in 2018
2017 brings several positives to SBS Transit. It will be the first full-year of operation under the BCM and the Bus operations should end the year with respectable profits. The year will also witness the opening of the third and final phase of the 42-km Downtown Line. The start of revenue service on the DTL will bring a surge in profits for Rail.
For the first time in many years, 2017 will see SBS Transit firing on all cylinders. Its bottom-line is set to recover with record profits expected in 2018.
The certainty that both bus and rail segments will be profitable makes for a strong case to invest in SBS Transit, and given the simplicity of its business model, the merits of the investment is quite straight-forward!
Update: SBS Transit reports hefty increase in profits for 9M17
For 9M17, SBS Transit reported a 7% increase in revenue and a 47% increase in profits compared to the year before. The numbers are set to improve further as profits from the Downtown Line flow to the bottom-line.