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3 Charts Illustrating SBS Transit’s Growth Since Moving to the Bus Contracting Model

2018 marked the second year since the Land Transport Authority of Singapore moved to the bus contracting model (BCM). In the BCM, bus operators bid for bus route packages and are paid a service fee for operating the bus services. The operating assets such as buses and bus depots are now owned by the Land Transport Authority (LTA) and bus operators are tasked with running the bus services.

The shift to the BCM model has benefitted bus service operators tremendously, reducing the capital expenditure required to buy and upkeep the buses, while still earning a decent service fee from the LTA.

SBS Transit Ltd (SGX: S61), which had a market share of 61.2% of the public bus services in Singapore as of 2018, has been the main beneficiary of the BCM. Since then, SBS has seen its revenue and profits rise steadily. It is also now able to pay a much higher dividend to shareholders. Here are three charts that beautifully illustrate how far SBS has come since the introduction of the BCM.

Growing revenue

In the last five years, SBS Transit’s revenue has increased steadily from S$951 million in 2014 to S$1.38 billion in 2018. More importantly, the BCM contracts are fairly long with an average span of seven years. When the BCM was first introduced, SBS Transit was tasked to operate eight bus packages. The bus operator has also gone on to secure another bus package (Seletar) under the public tender process. It also managed to secure (renew) its Bukit Merah bus package which expired in 2018. These contracts provide SBS with visible revenue over a fairly long-term. 

The chart below shows that the growth in revenue has been increasing over the years:

Source: SBS Transit 2018 annual report

Expanding its profit margins 

Perhaps more importantly for investors, SBS Transit has been able to increase its earnings per share at an even faster tick. The BCM model allows bus operators to save on the large capital outlay for acquiring buses. Under the initial agreement with the LTA, SBS Transit was also able to lease its existing fleet to the LTA at its depreciation cost. As such, SBS Transit has managed to earn a much larger profit margin since the full implementation of the BCM.

The chart illustrates the rapid growth in earnings per share:

Source: SBS Transit 2018 annual report

As you can see, earnings per share have more than quintupled in that short time span, compared to a 40% growth in revenue.

Driving up dividends

Lastly, income investors would have been well-rewarded if they had invested in SBS Transit before the implementation of the BCM. 

The bus operator has increased its dividend by as much as its profit growth, consistently paying out half of all its profits to shareholders.

The chart below shows the dividend per share growth over the last five years:

Source: SBS Transit 2018 annual report

The Foolish bottom line

SBS Transit has been the key beneficiary of the LTA’s conversion to the BCM model. 

As SBS Transit’s BCM contracts with the LTA span several years, investors can be rest assured that the bus operator will likely keep the cash rolling in for the foreseeable future.

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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 Jeremy Chia does not own shares in any companies mentioned.