Taxi fare revisions similar to ComfortDelgro. SMRT announced yesterday that it would be revising its taxi fares to match the recent increase by ComfortDelgro. It cited the need to "keep pace" with its competitor's increase in order to provide its cab drivers with the ability to cope with higher fuel costs and rising cost of living. Some of its fare revisions included raising flag-down rates, increases in meter fares and extension of city area and peak period surcharges. The new fares will be implemented next Tuesday (20 Dec 2011).
Cannibalization effect by trains and buses likely to be minimal. A significant drop-off in commuters utilizing taxis resulting from the new fare structure is highly unlikely. While there may be some initial resistance by commuters, we see a reversion to normality once they become more accustomed to it. Previous fare revisions in 2006 and 2007 also met with largely negative reactions and threats of boycotts but given the increasing need for public transport in Singapore and elevating costs of car ownership, these reactions will simmer down eventually.
No impact on FY12 earnings. Given that the fare revision will only affect travelling costs for passengers and cab drivers' income, and the fact that SMRT has not yet announced any changes to its taxi hire-out/lease-out rates, there will be no material impact on SMRT's earnings going forward. Barring any further announcements from the company, we are leaving our FY12 earnings projections unchanged.
Continued train and bus ridership growth; new advertising initiatives. SMRT is continuing to experience YoY growth in its train and bus ridership figures. For Oct, it reported a 7.6% YoY and 2.4% YoY growth respectively for its train and bus operations. In addition, SMRT also recently embarked on a new QR code reader shopping initiative with Cold Storage supermarkets to allow commuters to purchase food for the upcoming Christmas festivities on-the-go.
Upgrade to BUY. Since our last report issued on 31 Oct, SMRT's share price has come off slightly together with the broad market's decline; but we continue to like the counter for its dividend yield (4.3% FY12F vs. 3.7% FY12F for STI). In addition, with fuel costs hedges and growing Circle Line ridership, we see opportunities for SMRT's operating margins to improve. Based on valuation grounds, we are upgrading our call on SMRT to BUY with an unchanged fair value estimate of S$2.04.
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