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SBS Transit Ltd’s Latest Earnings: What’s Next After Strong Growth Seen?

SBS Transit Ltd (SGX: S61) released its fiscal second-quarter earnings yesterday evening. The reporting period was for 1 April 2015 to 30 June 2015.

SBS Transit is a subsidiary of land transport giant Comfortdelgro Corporation Limited (SGX: C52). Singaporeans may recognize SBS Transit’s namesake buses and the Downtown MRT line that it operates. With that, it may not be a surprise to know that the company has two business segments, namely Bus and Rail.

You can learn more about the company in here and here. You can also look up its previous quarter’s earnings here.

Financial highlights

The following’s a quick take on SBS Transit’s latest financials:

  1. Quarterly revenue for SBS Transit rose by 8.4% year-on-year to $254.9 million with growth coming from both business segments.
  2. Net profit attributable to shareholders leapt by 22.8% year-on-year to $6.1 million. The transport company benefited from a fall in fuel and electricity costs.
  3. Consequently, earnings per share (EPS) increased from 1.61 cents in the second-quarter of 2014 to 1.97 cents in the reporting quarter, a handsome gain of 22.4%.
  4. For the second-quarter of 2015, cash flow from operations was $23.9 million with capital expenditures clocking in at $44.2 million. Unfortunately, this puts SBS Transit in negative free cash flow territory to the tune of $20.3 million. These figures were a tad better compared to a year ago though when SBS Transit had $23.4 million in cash flow from operations, $49.3 million in capital expenditures, and thus -$25.9 million in free cash flow.
  5. As of 30 June 2015, SBS Transit had $4.5 million in cash and equivalents and a sizable $511.4 million in debt. The bus and rail services provider has seen its balance sheet deteriorate significantly from a year ago when it had $5.8 million in cash and equivalents and $406.3 million in debt.

In short, SBS Transit had reported a quarter of solid revenue growth with even faster profit growth. That’s a great thing, but there are still areas of concern. The transport outfit is still reporting negative free cash flow and holds a significant amount of debt. The balance sheet is also not improving and that’s an area where investors need to watch.

On the back of higher profits, SBS Transit’s board of directors had proposed an interim dividend of 1.65 cents per share. This is a 32% increase from last year’s interim dividend of 1.25 cents per share for the same period.

Operational highlights

For the Bus segment, total revenue reported was $202.6 million – an increase of 8.8% year-on-year. Average daily ridership had increased by 3.5% to 2.8 million passenger trips for the quarter. The rise in revenue and lower operating cost led to the segment reporting an 82.9% year-on-year surge in operating profit to $7.1 million.

Meanwhile, the Rail segment was no slouch either with it registering a 7% year-on-year growth in revenue. Quarterly revenue for the segment was $52.3 million. Unfortunately, the Rail business’s operating profit had fallen by more than half to $1.2 million due to higher staff costs as a result of the ramp-up of Downtown Line Stage 2.

Looking forward, SBS Transit’s management team sees higher revenue growth from increases in ridership and fares. On a more cautionary note, management also stated that the firm will continue to face challenges for both the Bus and Rail segments.

Foolish summary

At its closing price yesterday of $1.73, SBS Transit traded at around 32 times its trailing earnings and has a trailing dividend yield of around 1.6%.

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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.