SBS Transit Ltd’s 2017 Annual Report: Key Takeaways About The Firm’s Growth

SBS Transit Ltd (SGX: S61) provides bus and rail services to the Singapore public. Under the rail services business, SBS Transit operates the North East Line (NEL), the Downtown Line (DTL), and the Sengkang and Punggol Light Rapid Transit (SPLRT).

Earlier this month, SBS Transit released its annual report for its financial year ended 31 December 2017. I learnt a few things about the company’s growth potential as I was reading through the Chairman’s statement, one of the many sections in the report. Here are a few takeaways.

Transition to the New Rail Financing Framework (NRFF)

On 1 April 2018, the NEL and the SPLRT systems transitioned to the NRFF. DTL was already under the new framework.

Under the NRFF, the Land Transport Authority (LTA) will buy over SBS Transit’s existing rail assets. The LTA will then own and pay for the assets, including additions, renewals, and replacements. SBS Transit’s chairman, Lim Jit Poh, said:

“LTA will make the capital investments in operating assets and thereby retain the ability and flexibility to decide on the additions, renewals and replacements and undertake long term planning for the rapid transit system network. This will be better for commuters and is a more sustainable option for us, as operators, in the long term.”

The NRFF is an asset-light model as the LTA will take care of capital investments for the operating assets. This should translate to higher free cash flow for SBS Transit, and thus the possibility of higher dividends for shareholders in the years ahead.

Foray into autonomous vehicles

As part of Singapore’s Smart Nation push, our island nation is looking into self-driving technology. According to the Smart Nation website, the relevant authorities are “exploring the application of self-driving technology to public transport not only to bring in new forms of shared mobility, but also to address the constraints we face in land and manpower.”

SBS Transit is also involved in Singapore’s drive towards autonomous vehicles. Lim explained:

“With Autonomous Vehicles (AV) being the future of mobility, we are in collaboration with ST Kinetics (STK) to develop AV omnibuses for use on our public transport system. We have started providing STK with inputs on our bus operations’ and customers’ needs. We expect to begin field trials of two AV buses in the first half of 2019 followed by a full trial in May 2020.”

ST Kinetics is the land systems and specialty vehicles division of Singapore Technologies Engineering Ltd (SGX: S63). With vast experience in the land transport industry, SBS Transit should be able to provide key insights into the development of the self-driving omnibuses.

“Hey, bus! Come to me”

The most interesting growth avenue, to me, is SBS Transit’s partnership with local start-up, the Ministry of Movement (SWAT). The two companies are working on providing on-demand, dynamically-routed public bus services (ODBS). ODBS allows commuters to make more direct journeys while optimising resources.

Lim gave more colour on the collaboration in SBS Transit’s latest annual report:

“Under the plan, we are to handle the bus operations while SWAT provides the booking platform. We are heartened that SWAT was awarded the contract in February 2018 by the LTA to conduct the first phase of the ODBS.

We will be supporting the project with simulations to demonstrate and refine the service standard and resource requirements to enable LTA to determine the operational trial parameters. At the same time, SWAT will develop a dynamic matching and routing algorithm which will enable the buses to be deployed according to real-time commuter demand. The second phase of the tender is scheduled in the third quarter of 2018.”

If the ODBS by the two firms is successfully implemented on Singapore’s roads, we could potentially see a new revenue stream for SBS Transit. More importantly, such an on-demand bus service would give commuters more travel options, on top of the regular transportation modes currently available.

The Foolish takeaway

Instead of just focusing on its traditional business of providing basic bus and rail services, it is interesting to know that SBS Transit is working on new technologies and initiatives such as self-driving vehicles and on-demand bus services. The NRFF could bode well for the company in the years ahead as well.

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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 owns shares in SBS Transit Ltd.