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28 Dec 2019  (992 Views) 
Land Transport Authority

Bus contracting system
Dear Mr. Tan,
Today marks the beginning of the highest increase (7%) in public transport fares  (bus & train) among all the other past fares increases so far. Please allow me to share my views & findings on why I think the gov needs to justify and owes an explanation to all commuters which I do not see why the fares increased is necessary. I’ll just talk about SBS Transit as it’s a public listed company and we can easily access to its financial report easily.

The gov make no mentioned on the SBS Transit’s financial figures at all, prior to the announcement of fares increased which I find it strange.

In 2017, SBS made a net profits of $47.1 million. While last year, 2018 it made a record net profits of $80.1 million, a net 70% profit increased over 2017 and the management paid out a dividend of $0.1425 per share to all shareholders. This work out to be a 3.72% dividend payout at its last traded share price of $3.83 on Friday, 27/12/19.

Assuming this coming qtr, 4Q19 its net profits result remains the same as in 3Q19 ($20m). This will work out to a full year record profits of $84.9m which is 6% higher than last year, 2018. This presumably that SBS mgt. should payout the same amount (or more) of dividends as that of last year.

Also, come end of next year, 2020, barring unforeseen situations, SBS financial report should report even higher record profits due to today’s latest increased in transport fares. By the way, SBS Transist major shareholder is ComfortDelgro, which controls 74.4%, while Temasek is the major shareholder of ComfortDelgro.

From the share price chart, we can see that there was a big jumped in SBS Transist share price since Jan 2019. That’s becoz in 2018, gov announced to restructure the public transport system, whereby the gov’s LTA will maintain and purchase all the physical SBS buses, while SBS Transist only take care of the bus routes & operations to serves the commuters.

Therefore this in turns gives a big boost to SBS profitability. As we are just commoners, there’s nothing much we could do but to accept this spike in transport fares. 

The above is just my personal view, and just in case I may have missed out on some details, please enlighten me if it’s not correct.  I hope you can also share with me your personal views.

Reply by TKL 

Dear .....
The govt has implemented the bus contracting model.  All fares are collected by the govt. The govt tenders out the operation of the buses under several contracts.

SBS Transit tenders for the operation of the buses and are given some of the contracts.  The operator gets a fixed fee based on the tender.  If they operate the services efficiently, they make a profit from the tender fee less the cost of operations. This is how SBS Transit makes their profits.

The govt's collects all the fares and pays out to the operators based on the tender price. The govt said that the fares that they have collected is not sufficient to pay for the cost of operations (based on the contracts for the operations).  This is why the govt wants to increase the fares.

So, the increase in fares does not affect the profits of SBS Transit or any of the other bus operators. 

Tan Kin Lian

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