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Sathyavan's avatar

#1 How do you see other commercial services. I think this is high margin > 55% ebit margins. Seems like a nice biz " Commercial Services segment is engaged in advertisements on buses and trains and at bus interchanges and rail stations, and rental collections from commercial and shop space at bus interchanges and rail stations." #2 And i thought about the cash pile, a lot seems link to covid gov aids, so understandable they go slow and conservative here.

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Michael Fritzell's avatar

Hi Sathyavan, I totally missed to reply to this message - I'm so sorry.

Yes, the commercial business has been highly profitable, with basically zero COGS. They renegotiated the advertising concession earlier this year, and given the sluggish earnings growth, it seems like they must have paid to retain the privilege of advertising in buses, trains and stations. But on the plus side, as the economy continues to recover, incremental advertising revenue should flow straight to the bottom line.

Good point about the government subsidies during COVID-19, perhaps that's partly why. Parent ComfortDelGro are now buying back shares, so it does seem possible, even for a Singapore SOE. I just wish they'd buy shares in SBS Transit instead, which appears more attractive to me.

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Sathyavan's avatar

"Other Commercial Services

Revenue from Other Commercial Services increased by 0.3% or $0.1 million to $27.1

million. However, the advertising concession fee payable from 1 January 2024 under the

Land Transport Authority (LTA) new rail advertising concession agreement, coupled with

higher staff costs and higher other operating costs, led to a drop of 56.6% or $10.1 millionin operating profit to $7.7 million." Wow, 56% drop, don´t like this, mabe thats the reason why share price action was so weak recently.

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Michael Fritzell's avatar

Oh shit... what I feared. Not a catastrophe, but not what I'd expect given last year's fare hike either. It's as if the concession fee was set to reduce profits short-term.

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Michael Fritzell's avatar

Thanks for sharing Sathyavan

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Sathyavan's avatar

I asked the IR about it, they answered me: "The advertising concession fee is accrued monthly and paid annually, it will be a recurring expense going forward." Still unclear how big is this part from this 10M drop, but do you really think it´s only shortterm drag?

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Michael Fritzell's avatar

The concession fee must be the majority of the drop. I had not expected the fee to have been this high and honestly shocked they didn't communicate the quantum of this fee publicly. Presumably investors in contact with management knew. The increase is one-off but the concession fee is here to stay. I still think the stock is undervalued but the December fare hike effect was disappointing and there's no other catalyst to get excited about, as far as I can tell. Perhaps the Jurong Region Line in 2027.

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Sathyavan's avatar

No worries Michael, thank you for your answer 👍

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Sathyavan's avatar

technical now at interesting levels. Working capital has gone from negativ to 384M! Did they adress this and do they want even to increase it?

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Michael Fritzell's avatar

Well, receivables and inventories are perhaps high but in line with historical levels. There's a huge cash balance, and all they've said that they'll consider raising their payouts. But nothing beyond that. They used to pay out 50%, and hopefully they'll get back to such levels.

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Sathyavan's avatar

yeah with 50% will likely cross 5% dividend yield, thats quite good for me. Do you think comfortdelgro will try a buyout in the future and if so at what premium would be realistic?

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Michael Fritzell's avatar

I don't think so... They're very conservative, not quick to act

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Sathyavan's avatar

ok thank you!

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daniel litten's avatar

Thoughts on results/new shutdown? Permanently impaired with lower ridership?

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Michael Fritzell's avatar

Ok, so the outbreak is serious. I believe it is more serious than the outbreak in March 2020. There are many unlinked cases and the virus seems to be have been spreading in schools. This time around, COVID-19 also leads to symptomatic infections in children and those may or may not lead to lasting, long-term negative effects.

In a best-case scenario, the virus stops spreading and the economy opens up in stages from 11 June 2021 onwards. In a worst-case scenario, we will face a multi-month lock-down to ensure no spread while the population gets vaccinated.

The best real-time indicator to track is Apple's Mobility Index (https://covid19.apple.com/mobility), since it is updated daily. It looks like public transport ridership is down 45% YoY, hitting SBS Transit's bottom-line directly.

I don't think that the business is permanently impaired. mRNA vaccines seem to work against the two subvariants of B1617, though it is possible that vaccinated individuals can become infected and spread the virus on to others. Israel's COVID-19 case count is now down to zero and the same could well happen to Singapore. I expect Singapore's vaccination rate for the adult population to hit around 70% by year-end.

If I were you I would keep monitoring the data for another two weeks and then buy the stock as ridership shows signs of bottoming.

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