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Daiwa's strategy for 2017
Is five a crowd for Singapore’s public bus operators?
By Michelle Zhu / theedgemarkets.com.sg | January 25, 2017 : 9:52 AM MYT
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SINGAPORE (Jan 25): Singapore’s bus infrastructure landscape has been transforming rapidly over the past year, and there can be only one Singapore-listed stock that could possibly gain from it all.
In its Singapore Strategy report last week, Daiwa Capital Markets highlighted ComfortDelGro as the key beneficiary of the industry’s recent changes through its bus transport subsidiary SBS Transit – especially since the bus contracting model (BCM) began taking effect in Sept 2016.
While foreign bus operators Go-Ahead and Tower Transit have already been named as the new entrants under the model, the research house believes the increased competition is outweighed by the benefit of having the Singapore government shoulder the revenue risk previously faced by bus operators.
The winner of the third bus package tendered (Seletar), which Daiwa thinks will a new bus operator as well, is slated to be announced some time in 2Q17.
Despite the additional competition, as future bus capex commitments will be undertaken by the government under the BCM, Daiwa sees this as a relief to ComfortDelGro of an “onerous burden of unprofitable fare collection” such that the group’s free cash flow is also likely to improve.
“The new asset-light model aims to relieve operators of the burden of revenue and ridership risk, while also more effectively enabling the transmission of changes in the requirements of bus services as well as managing fleet capacity, while ultimately balancing the interests of all key stakeholders in tandem with population growth and an expected increase in the demand for high quality public transport in Singapore,” comments the research house.
“Looking ahead, with the completion of the Bus Service Enhancement Programme (BSEP), we expect further capacity additions will be made at a more measured pace through contracts with operators under the new bus model,” it adds.
Daiwa has rated ComfortDelGro at “buy” with a price target of $2.45, on expectations of the group’s expansion in its Singapore bus operating margins from around 0-2% to 8%.
Shares of ComfortDelGro are trading 1 cent higher at $2.44.
Daiwa's strategy for 2017
Is five a crowd for Singapore’s public bus operators?
By Michelle Zhu / theedgemarkets.com.sg | January 25, 2017 : 9:52 AM MYT
Printer-friendly versionSend by emailPDF version
Translated by Google Translator:
Select Language*▼
SINGAPORE (Jan 25): Singapore’s bus infrastructure landscape has been transforming rapidly over the past year, and there can be only one Singapore-listed stock that could possibly gain from it all.
In its Singapore Strategy report last week, Daiwa Capital Markets highlighted ComfortDelGro as the key beneficiary of the industry’s recent changes through its bus transport subsidiary SBS Transit – especially since the bus contracting model (BCM) began taking effect in Sept 2016.
While foreign bus operators Go-Ahead and Tower Transit have already been named as the new entrants under the model, the research house believes the increased competition is outweighed by the benefit of having the Singapore government shoulder the revenue risk previously faced by bus operators.
The winner of the third bus package tendered (Seletar), which Daiwa thinks will a new bus operator as well, is slated to be announced some time in 2Q17.
Despite the additional competition, as future bus capex commitments will be undertaken by the government under the BCM, Daiwa sees this as a relief to ComfortDelGro of an “onerous burden of unprofitable fare collection” such that the group’s free cash flow is also likely to improve.
“The new asset-light model aims to relieve operators of the burden of revenue and ridership risk, while also more effectively enabling the transmission of changes in the requirements of bus services as well as managing fleet capacity, while ultimately balancing the interests of all key stakeholders in tandem with population growth and an expected increase in the demand for high quality public transport in Singapore,” comments the research house.
“Looking ahead, with the completion of the Bus Service Enhancement Programme (BSEP), we expect further capacity additions will be made at a more measured pace through contracts with operators under the new bus model,” it adds.
Daiwa has rated ComfortDelGro at “buy” with a price target of $2.45, on expectations of the group’s expansion in its Singapore bus operating margins from around 0-2% to 8%.
Shares of ComfortDelGro are trading 1 cent higher at $2.44.
