What I Learnt From SBS Transit Ltd’s 2017 Annual General Meeting

On the morning of 25 April 2018, SBS Transit Ltd (SGX: S61) held its annual general meeting (AGM) for 2017. As a shareholder, I attended the AGM to gain more insights into the business.

The following is what I learnt from the presentation on SBS Transit’s financial results for 2017 by Tan Poh Choo, Evelyn, who is the company’s Senior Vice President (Finance).

The company’s key milestones for 2017 included: (1) A full-year’s contribution from the Bus Contracting Model (BCM) contracts, compared to just four-months in 2016; (2) winning the Seletar bus package; and (3) the commencement of revenues from Downtown Line Stage 3 (DTL3) on 21 October 2017. With DTL3, SBS Transit’s rail business covers a total rail-distance of 82km, representing a market share of 36%.

In 2017, SBS Transit’s revenue increased by 8.5% to S$1.19 billion due to higher revenue from its Public Transport Services segment which more than offset lower revenue from the Other Commercial Services segment.

The Public Transport Services segment saw improvements primarily due to the full-year revenue contribution from the BCM contracts, and higher ridership from rail services with the opening of DTL3 in October 2017. Revenue from the Other Commercial Services segment declined by 12.4% to S$56 million because of lower advertising and rental income from the loss of the Bulim and Loyang bus packages.

SBS Transit’s operating costs increased by 7.1% from S$1.06 billion in 2016 to S$1.13 billion in 2017, mainly due to higher staff costs, and repairs and maintenance expenses. Staff costs grew because the company needed to increase its headcount in preparation for DTL3, while repairs and maintenance costs increased due to higher maintenance required from the company’s aged transport fleet.

Operating profit increased by 42.1% to S$59.3 million, while net profit grew 50.3% to S$47.1 million. The company’s operating profit margin increased from 3.8% in 2016 to 5% in 2017, and its return on equity climbed from 8.3% to 10.9%. Earnings per share jumped by nearly 50% from 10.12 Singapore cents to 15.17 Singapore cents, in line with the net profit growth. SBS Transit’s total dividend per share (which was approved by shareholders later during the AGM), was raised from 5.05 Singapore cents in 2016 to 7.60 Singapore cents in 2017.

Before the BCM came into play, SBS Transit had to incur significant capital expenditure (capex) to acquire buses. With the BCM, the LTA is the one having to buy the buses. Therefore, capex for SBS Transit has fallen significantly. For example, at the peak in 2014, SBS Transit’s capex was S$214.4 million and its gearing ratio (total debt over equity) was 155.6%. In 2017, these have improved considerably to S$35 million and 40.3% respectively.

In 2018, SBS Transit said it would focus on:

1) The Seletar bus package, which started on 11 March (with the Selatar package, SBS Transit now has a market share of 62% of Singapore’s bus network);

2) The New Rail Financing Framework (NRFF) for the North East Line and the Sengkang and Punggol Light Rapid Transit which commenced on 1 April 2018 (you can learn more about the NRFF here); and

3) The commencement of the Bukit Merah bus package from 18 November 2018.

My Foolish takeaway

It was a stellar 2017 for SBS Transit. It will be interesting to watch how 2018 pans out for the company with the transition of the rail business to the NRFF, a full-year contribution from DTL3, and the second whole year where the bus operations will be under the BCM.

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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.