Possible fine for service disruptions
- Power failure disrupted services on two rail lines.
- Maximum possible fine of c.SGD50m. Actual penalty could be much lower. No change to EPS for now.
- Maintain HOLD for lack of catalysts & SGD1.57 TP, at 20x FY16 P/E.
What’s New
- A power failure supposedly led to service disruptions on the MRT’s North-South (NS) and East-West Lines (EW) from 7:15pm yesterday. Services for EW and NS resumed at around 9:20pm and 10:35pm respectively.
- These lines are operated by SMRT.
What’s Our View
- We believe that the regulators could fine SMRT for the service disruptions. This poses downside to our FY3/16 net-income forecast of SGD119.4m.
- Recall that Parliament passed a bill on 17 Feb 2014 that increased the maximum fine for every rail disruption to 10% of an operator’s annual fare revenue for the relevant rail line.
- This was up from the previous maximum of SGD1m.
- SMRT’s FY3/15 rail revenue was SGD644m for its NS/EW and Circle Line (CCL). This suggests a maximum fine of SGD64.4m for its entire rail network.
- As the latest service disruptions did not affect CCL, we reckon that the maximum fine for this incident could be closer to SGD50m.
- The regulators are investigating the root cause of the incident. While the actual fine may be much lower than the maximum possible, it nonetheless poses risks to our forecasts.
- In history, the highest fine imposed was SGD1m each for two major disruptions in Dec 2011.
- Another four incidents between Oct 2013 and May 2014 led to a total fine of SGD1.6m for SMRT.
- While there could be a knee-jerk reaction to this latest episode, we doubt that the downside will be significant.
- Maintain HOLD for now and SGD1.57 TP, at 20x FY3/16 EPS (1SD above its 10-year average).
(Derrick Heng, CFA)
Source: http://www.maybank-ke.com.sg
