Investment Moats

  • Home
  • High Yield Dividend Stocks
  • My Current Portfolio
  • About
    • Advertise / Hire Me
  • My Resources
    • Build Wealth Foundation
    • Active Investing
    • REITs Investing
    • Redesigning Your Life
    • Retirement Planning
  • FREE Calculators
    • Dividend Stock Tracker
    • Stock Portfolio Tracker
    • Cost of Car Ownership Online Calculator
    • Wealthy Calculator
    • Property Investment Calculator

SBS Transit sells NEL and Seng Kang LRT to LTA. Moves to Rail Financing Framework. Deal does not look Good

February 15, 2018 by Kyith 4 Comments

ShareTweet

So shortly after I shared some of my thoughts on SBS Transit, SBS announces tonight that they will be selling the North East Line and Seng Kang, Punggol LRT to LTA.

SBS will also be transiting to the New Rail Financing Framework. NRFF.

The sale consideration is $28 mil, which is a small amount in the grand scheme of things. With the sale, SBS can be truly asset light.

The NEL concession was a 30 year operating contract with a possible 30 year extension. This will be changed to a 15 year concession starting in April 2018 with the option to extend for 5 more years. This is similar to the SMRT NRFF.

SBS have to pay a licensing charge to LTA for the use of the assets.

SBS’s future income will be based on its operating income or EBIT margin. If the margin is lower than 3.5%, LTA will replenish 50% of the shortfall to get it closer to 3.5%. This means that the bottom is not 3.5% but a number closer to 3.5%. Suppose the margin is 1%. LTA should top up 1.25% worth and SBS will earn a total of 2.25% in EBIT margin.

If the margin exceeds 5%, SBS get to earn only 5-15% of the EBIT above the 5% margin.

Thus, SBS loses uncertainty in capital expenditure and costs, but it gains some form of predictability.

The difficulty for us is that it is difficult to separate how much of SBS’s assets is NEL. I have a feeling SBS will be worse off if we compare  to last year.

I dug up some of my friend and my past work on SBS rail segments.

In recent reports, SBS classified the whole transport business as a segment so its even harder to see the breakdown.

In the table above we see the segmental for the rail business from 2003 to 2015.

NEL started operation from 2003 and it went through a period where it was loss making. If you observe the EBIT, it gradually became positive.

Around 2011, SBS started funding and preparing for the first phase of DTL. So you can see that while revenue is going up, the EBIT went down.

We cannot attribute how much is due to NEL or DTL Phase 1 and 2, but we can have a sensing what is the EBIT margin in those 5 years where the data is not tainted.

The EBIT margin is 4.7% to 14.61%. Now that is high margin.

So if SBS was to be under the current scheme in those 5 years the operating profit or EBIT will be much lower.

For example, if we take 2011, SBS earned $19.64 mil.

Assuming a 5% EBIT margin and a 15% threshold of the amount in excess of 5%,

5% EBIT profit = $134 mil x 0.05 = $6.7 mil

15% of excess = ($19.6 – $6.7 ) x 0.15 = $1.93 mil

Total earned in 2011 if under this new concession = $6.7 mil + $1.93 mil = $8.63 mil

This looks a drastic reduction. NEL ridership might have grown since then, but would also moderated by spreading out to the other MRT lines since Circle line came into operation. This looks like a 55% reduction in EBIT.

What lessons do you learn from deconstructing your child hood relationship with money, or in your experience teaching your kids about money? Do share with us.
To get started with dividend investing, start by bookmarking my Dividend Stock Tracker which shows the prevailing yields of blue chip dividend stocks, utilities, REITs updated nightly.
Make use of the free Stock Portfolio Tracker to track your dividend stock by transactions to show your total returns.

 

Related

ShareTweet

Filed Under: Uncategorized

About Kyith

Founder & Sole Employee of InvestmentMoats.com . Engineer by day. Blogger by night. Active Stock Investor for 14 years. SG & HK Mkts. Pursues Financial Security & Financial Independence. Reached Financial Independence at 38. Kyith's Google+, Facebook , Twitter. More on Kyith ...

Comments

  1. sy says

    February 15, 2018 at 8:27 pm

    Hi Kyith

    thanks for sharing, me just drop by to …

    祝大家:

    新年快了,身体健康!!!

    sy 🙂

    Reply
    • Kyith says

      February 17, 2018 at 10:00 am

      Hi SY, thanks for dropping by. Wish your family the best of health and wealth for the year of the dog.

      Reply
  2. halpha_sg says

    February 16, 2018 at 11:26 am

    Don’t invest using the rear mirror. Ministers have referred DTL2/3 as game-changer in 2016/2017. Let the privatization game begins in 2018!

    Happy Lunar New Year!

    Reply
    • Kyith says

      February 17, 2018 at 10:02 am

      Hi halpha_sg, what do you mean by DTL as a game changer? If they wish to privatize SBS, they would have done it long ago.

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

About Investment Moats

Kyith Ng is the founder of Investment Moats, which mentors you on wealth management towards Financial Independence

Investment Moats shows how you can build wealth through stock market investing, dividend income investing through a value based approach. And then to distribute wealth.

Be enlightened on how you can live a fulfilling life while building wealth.

You can find Kyith on Google+ as well

Read more…

Best Articles

  • Singapore High Yield Dividend Stocks for Income
  • Free Online Stock Investment Portfolio Spreadsheet
  • 5 Steps to Compound Wealth via Dividend Income
  • My Insurance Philosophy
  • Get Rich – Pay Yourself First
  • Should you buy Blue Chips at ANY price?
  • I built my Wealth by following this Wealthy Formula
  • How much u need to reach Financial Independence?
  • My advice to those 20 year old starting their Financial Independence journey
  • Beginner’s Guide – How to Buy and Sell Stocks, Bonds, REITs and ETFs in Singapore

Money Management

  • Budget Babe of Singapore
  • Bully The Bear
  • DIY Insurance – Insurance your own way
  • Heartland Boy
  • Invest Moolah
  • [email protected] Talk
  • My Housing Loan.SG
  • SG Wealth Planner
  • Singapore High Yield Income Investing
  • Singaporean Stock Investor
  • Wealth Buch
  • Wealth Journey

Blogroll

  • 8percentpa
  • Drizzt's Income Investing
  • Eat Dream Love – SG Premier Travel Food Review Blog
  • Financial Horse
  • Giraffe Value
  • My 15 Hour Work Week
  • SG Invest Bloggers
  • The Finance SG

Value Investing

  • Donmihaihai
  • Investing Nook
  • Kelvin Seetoh
  • Margin of safety
  • Musicwhiz Value Investment
  • Re-ThinkWealth
  • SG Dividends
  • SG ThumbTack Investor
  • Small Cap Asia
  • The Asia Report

Copyright © 2019 · Investment Moats ·