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How Does SBS Transit Ltd Make Money?

It is important to know what a particular company does and how it makes money before investing in it. Investing in a business without such knowledge is akin to travelling to an unknown territory without a map.

On that note, let’s check out what business SBS Transit Ltd (SGX: S61) is involved in and how it generates its revenue. SBS Transit, as many may already know, is primarily owned by ComfortDelGro Corporation Ltd (SGX: C52).

Let’s take a look at the table below for the revenue contribution of each business segment for the financial year ended 31 December 2016 (FY2016):

Source: SBS Transit Ltd Annual Report 2016

The Public Transport Services segment, which brought in the bulk of total revenue in FY2016, is involved in the “provision of bus and rail services to commuters travelling on public transport systems”.

At the end of 2016, SBS Transit operated a total of 202 bus routes, which translated to around 60% of the bus services in Singapore. As for the rail services, the company operates the North East Line, Downtown Line (DTL), and Sengkang and Punggol Light Rail Transit.

On the other hand, the Other Commercial Services segment generates revenue through advertisements on buses and trains, and at bus interchanges and rail stations. It also collects rentals from shops at bus interchanges and rail stations.

In FY2016, revenue for the Public Transport Services segment rose 7.5% year-on-year to S$1.03 billion mainly due to the growth in rail ridership. As for Other Commercial Services, sales went north by 4.4% to S$64 million. The increase was mostly from higher advertising revenue with the opening of the DTL2 stations at the end of 2015.

Now that we know the basics of SBS Transit’s revenue streams, we can then delve into other aspects of the firm such as its profitability, strength of its balance sheet, its cash-generating abilities and so on before deciding to invest in it.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of SBS Transit Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.