Shares of SBS Transit Ltd. (SGX: S61), a subsidiary of ComfortDelgro Corporation Limited (SGX: C52), has stalled over the last five plus years. The bus company?s shares is down 3.4% from 1 Jan 2009 to its closing price last Friday (28 November 2014). During the same timeframe, the company distributed a total of about 34 cents per share in dividends. By comparison, the capital gain returns of the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX: ^STI), was 80.3% for the same duration.
While the shares of SBS Transit have stalled — as Foolish investors, we…
Shares of SBS Transit Ltd. (SGX: S61), a subsidiary of ComfortDelgro Corporation Limited (SGX: C52), has stalled over the last five plus years. The bus company’s shares is down 3.4% from 1 Jan 2009 to its closing price last Friday (28 November 2014). During the same timeframe, the company distributed a total of about 34 cents per share in dividends. By comparison, the capital gain returns of the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX: ^STI), was 80.3% for the same duration.
While the shares of SBS Transit have stalled — as Foolish investors, we can still look behind the bus doors to understand its prospects for the future.
A closer look
SBS Transit can be divided to four different business segments – Bus, Rail Rental, and Advertisements. For the bus operations, it runs a fleet size of over 3,300 buses, making it the largest bus service operator in Singapore. SBS Transit also runs the mass rail transit (MRT) trains for the Downtown Line, which will eventually connect 34 stations in total. On top of that, it runs the North East MRT Line, and the Sengkang Light Rail Transit (LRT) as well as the Punggol LRT.
Beside transportation, SBS Transit also has other sources of revenue. The Rental segment refers to the sales generated from retail rental space at the MRT stations that it operates. The Advertisements segment covers the advertising services that the company offers, including bus and in-train advertising.
Source: Company Earnings Report
In the last five financial years (the financial year lines up with the calendar year), SBS Transit has grown its revenue from around $697 million to about $847 million. For 2013, the Bus segment made up over three-quarters of the company’s revenue. Sales from the Bus segment was also the largest contributor in revenue growth over the past five years. That said, the rest of the business segments grew faster on a percentage basis.
Sales for the Bus and Rail segment benefits from increased ridership or average fare. We can look at the five-year trends to get some clues.
Source: Company Earnings Presentation; Annual Report
The average daily ridership for the Bus segment rose 13% from 2.4 million in 2010 to 2.7 million in 2013. Similarly, the Rail segment also experienced an increase in average daily ridership from 431,000 in 2010 to 612,000 in 2014. The rail segment benefited from the increased usage in the North East MRT Line and the two LRT Lines. These increases over the past five financial years has driven much of the revenue growth for SBS Transit.
SBS Transit has managed to grow its revenue by a compounded annual growth rate of 3.4% over the past five years. Much of the growth of SBS Transit comes from the increase in ridership of its Bus and Rail segments, as well as the increase in the number of associated MRT stations that it manages. As such, Foolish readers should keep their eyes out for the next phases of the Downtown MRT Line.
The exercise above is to look at the sales alone. So far, there is nothing much which informs the individual investor on why shares has underperformed over the past five financial years. As a next step, we should observe if the topline growth trickles down to the bottom-line for it to sustain its dividend payouts. But, that’s for the next article.
As of the closing price last Friday (28 November 2014) of $1.72, SBS Transit traded at a trailing earnings ratio of about 33.7, and has a dividend yield of around 1.25%.
Read the second part of this article on SBS Transit here.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.