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SBS Transit Ltd’s Latest Earnings: Is A 45% Surge In Profit A Sign That The Worst Is Over?

Land transport operator SBS Transit Ltd (SGX: S61) announced its fiscal first-quarter results yesterday evening.

The company, together with industry peer SMRT Corporation Ltd (SGX: S53), had been facing declining profit margins for a number of years partly because the government was not willing to allow both operators to increase their fare prices to cope with rising costs.

But, the authorities have since relented and had even introduced sweeping changes to the public bus industry back in 2014. With that, SBS Transit had seen an improvement in its business; the bus and train operator even managed to clock double digit growth in both revenue and profit in 2014.

And from what you’d soon see with SBS Transit’s latest results, it seems like the company’s recovery still has room to run.

Financial highlights

For the first quarter of 2015, SBS Transit saw a 10.9% year over year jump in revenue to S$247.2 million. As a result of better cost control, the company had experienced a big 40.1% spike in operating profit to S$6.9 million when pitted against the same quarter a year ago.

These helped out SBS Transit’s bottom-line tremendously as the bus and train operator ended its fiscal first-quarter with S$4.77 million in net profit, up 44.6%from a year ago.

But while there was a nice jump in profit, the picture looks different on the cash flow front. SBS Transit ended the quarter with –S$8.07 million in operating cash flow, S$40.3 million in capital expenditures, and thus –S$48.3 million in free cash flow (free cash flow is defined as operating cash flow minus capital expenditures). For some perspective, the selfsame figures for SBS Transit a year ago were –S$1.73 million, S$49.9 million, and –S$51.6 million respectively.

On the topic of its financial health, SBS Transit saw its balance sheet weaken considerably compared to a year ago. The land transport outfit ended 31 March 2015 with a net-debt position (total debt minus total cash and for-sale investments) of S$500 million and a gearing ratio (total debt over total equity) of 158%; these figures compare with a net-debt position of S$380 million and gearing ratio of 115% seen at end-March 2014.

Operational highlights

SBS Transit has just two business segments, namely Bus and Rail. During the quarter, the Bus segment saw its average daily ridership increase by 2.6% to 2.8 million passenger trips. This had played a strong hand in the segment’s 11.7% increase in revenue from S$175.6 million in the first-quarter of 2014 to S$196.2 million.

There was a nice one-third jump in operating profit for the Bus segment. But, the segment still recorded a loss of S$3.7 million at the end of the day; there’s some consolation to be had however, as the loss suffered in the first-quarter of 2015 was narrower than the S$4.7 million seen in the same period a year ago.

The Rail segment saw some healthy growth figures. Ridership on its North-East Line and Light Rail Transit were up by 5.2% (to 526,000 passenger trips) and 13.3% (to 95,000 passenger trips) respectively. These helped push the Rail segment’s revenue up 8.1% year over year to S$51 million. The higher revenue had an effect further down the income statement as the Rail segment’s operating profit spiked by 42% to S$3.7 million for the quarter when compared to a year ago.

Foolish Takeaway

In the release, SBS Transit’s management team commented that it expects to earn more revenue in the year ahead with “higher ridership and fares.” But, it also cautioned that staff costs will likely trend higher, as will depreciation and financing costs as a result of the “renewal and expansion of the bus fleet.”

But with all that said, what we’ve seen in the first-quarter of 2015 might be an indication that the worst is finally over for SBS Transit.

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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 writer Stanley Lim does not own any companies mentioned above.