SBS Transit Ltd’s Latest Earnings: What’s Next After A Huge Jump in Profit?

SBS Transit Ltd.  (SGX: S61) released its fiscal fourth quarter results for the financial year ended 31 December 2014 yesterday.

SBS Transit, which runs buses and trains in Singapore, is a subsidiary of land transport giant ComfortDelGro Corporation Limited (SGX: C52).

With these as a backdrop, let’s dig into the company’s latest set of figures.

Revenue for SBS Transit comes from two segments – the Bus segment and the Rail segment. For the whole of 2014, SBS Transit saw overall revenue jump 12.2% to S$951 million, driven by a 10.5% revenue increase to S$754 million for the Bus segment.

In turn, the Bus segment’s own growth came on the back of “increases in average daily ridership and average fare, higher rental from shop renewals, higher advertising sales and higher other operating income”.

SBS Transit’s revenue increase had flowed down to the bottom-line as net profit spiked by 27.8% to S$14.3 million for 2014, up from S$11.2 million a year ago. Consequently, earnings per share had increased by the same percentage from 3.62 cents in 2013 to 4.62 cents in 2014.

Despite the impressive profit jump, SBS Transit’s annual cash flow from operations had dropped significantly from S$55.6 million a year ago to S$33.3 million. With a huge jump in capital expenditures from S$166.1 million to S$214.4 million, SBS ended 2014 with a negative free cash flow of S$181.1 million, down from a negative S$110.5 million seen in 2013.

The huge cash outlay had weakened SBS Transit’s balance sheet considerably. As at end-2014, SBS carried a net-debt position of S$472 million (cash and investments of S$10.5 million; total borrowings of S$482.5 million); at end-2013, the figure was just S$339 million (cash and investments of S$15 million; total borrowings of S$354 million).

SBS Transit had taken up more loans partly to fund its Bus Service Enhancement Programme that was rolled out back in 2012.

In any case, shareholders may be happy to note that a fatter dividend cheque from SBS Transit is on its way; the bus and train operator had declared a final dividend of 1.05 Singapore cents per share, up from 0.90 cents a year ago. This will bring the total dividend for 2014 to 2.3 Singapore cents per share (up from 1.8 cents in 2013).

At SBS Transit’s closing price of S$1.97 yesterday, the firm’s shares have a trailing-12-month dividend yield of 1.2%.

Going forward, SBS Transit said that revenue in the upcoming year is expected to be higher with increased ridership and higher average fare, with fares set to increase by around 2.8% come 5 April 2015. That sounds good. But investors should also watch for any revenue increases to make its way down to the bottom-line.

In the earnings release, SBS Transit cautioned that “the outlook for [its] Bus and Rail segments will continue to be challenging,” partly due to the possibility of higher staff costs. Downward pressure on profits is also expected to come from higher depreciation and financing costs as a result of the improvements the company has made to its bus fleet.

Although there was no mention of the following in SBS Transit’s earnings release, the issues plaguing the company’s bus operations may be alleviated in the future when the new public bus industry business model kicks in (though the net-effects are still not clearly known yet) whereby the government will assume ownership of most of the infrastructure and assets in that space. It will be interesting to see how this plays out.

Shares of SBS Transit are trading at 43 times its latest earnings based on its price at the close of Tuesday.

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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 Sudhan P doesn't own shares in any company mentioned.