SBS

I like to look at SMRT and SBS as advertising media. That's the cash cow where Public Transport Council can not touch. For the latest quarter, revenue/profit from advertisement are 4.756m/3.08m and 7.441m/4.541m for SMRT and SBS respectively. The margin is sweet.

Note that all MRT stations are PRIME AREAS for retail rental, whereas bus interchanges and depots are not as good. I suppose that's the reason why SBS has not had a segment on Rental (5.8m revenue for whole of FY07). I believe too that the growth on rental will be significant given such a low base and the sweet margin (SMRT 2Q08: 9.822m/7.658m).

Bus fare is calculated using “CPI + X” formula and CPI basket has 22% weightage in "Transport and Communication". I am not sure how to prevent an inflation here (Read: Fare will continue to rise into the future). This should prevent loss-making for the Bus Operation for both companies.

End of the day, buy the Rental and Advertising businesses.


I will like to highlight that a up and rising star for SBS is the NEL line. This year onwards will be the re-rating of SBS whereby the trains are finally rolling in the profits. From FY04 operating loss of S$21m to S$5.7m YTDSept07 operating profits (FY07 could be as high as $7.5m). and remember there is a demographic/population shift to NEL. There are still plenty of empty land in NE Spore which are ideal for residential devt.

Other operating income (based on annual reports, at least half is of rental income), has increased from $9m(rental income of $5.8m) in FY06 to S$12m operating income in 9M07 (YTD Sept 07). Assuming half is rental; so 9M07's rental income is already more than prior year.


But I urged forumners to see this investment as mainly a dividend yield play (>8%) as a long term hedge against inflation. Capital appreciation is a bonus.