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    May 21, 2014

    Transport stocks up on talk of changes

    LAND transport stocks powered ahead yesterday on speculation that key structural changes to the industry are imminent.

    SMRT Corp led the rally by climbing 14 cents or 10.9 per cent to reach an 11-month high of $1.48, with 21.3 million shares changing hands.

    It was among the day's top gainers, far outstripping the Straits Times Index's small 3.04 point rise.

    ComfortDelGro Corp, also propelled by record earnings, rose by seven cents or 3 per cent to hit a seven-year high of $2.38, with 11.4 million shares transacted.

    Its subsidiary, SBS Transit, climbed almost eight cents or 5.7 per cent to reach a seven-month high of $1.40. Its trading volume, however, was relatively low at 229,000 shares.

    Research houses attributed the sudden surge in interest in these stocks to potential policy changes. The Government has been considering adopting a new operating model for public buses since 2008. And SMRT - the smaller of two bus operators here - has been fairly vocal in advocating a change in recent months.

    SMRT has also submitted proposals to the Government for it to migrate over to a new rail financing framework. In it, the Government will own all operating assets, which it will lease to SMRT.

    This will transform the Temasek-owned company into an asset-light entity with lower depreciation charges and a less lumpy capital expenditure pattern.

    Its stock surged by nearly 20 per cent on April 24, on news that it had filed a formal proposal for the switch.

    Yesterday, Deutsche Bank maintained a "buy" rating on both ComfortDelGro and SMRT, with a target price of $1.80 for the latter. "We do not believe the potential upside from policy reforms has been fully priced in and reiterate our 'buy' ratings on both," it said.

    It added that key potential policy reforms relate to a possible change in the bus operating model, and an early migration of existing rail lines to an asset-light model.