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Afa Interpretation Of Financial Statements Sbs Transist Vs Smrt

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  • Good afternoon Ms Wanna Lui, I am Ruo Ting from Golden Phoenix Pte Ltd. And together with me is Jingyi.
    Today, I will be sharing with you the background of the company, SBS Transit, I would like to recommend you for investment.
    Our team has also prepared a SWOT analysis for your understanding.
  • To start off with, let us look at the timeline of SBS Transit.
    SBS Transit first started out as Singapore Bus Service Ltd in 1973 through the merger of three private bus companies.
    In November 1997, Singapore Bus Service Limited was renamed to Delgro Corporation Limited and a subsidiary Singapore Bus Service Limited which focused on bus operations.
    Later in November 2001, it changed its name to SBS Transit Ltd to reflect its bi-modal status as a bus and rail operator.
    In 2003, North East Line and Sengkang LRT was introduced to serve the residents in the north east area.
    In 2005, Punggol LRT System began operation.
    SBS now owns 75% of the bus market in Singapore with 250 bus services and total of 3,000 buses, along with two LRT lines of 29 Stations and one MRT line of 16 Stations.
  • Moving on, SBS is one half of the duopoly transport system in Singapore.
    Its parent company is Comfort Delgro.
    SBS is also prepared to bid for future MRT lines starting from Downtown line.
    In addition, the transport fares for buses, MRT and LRT have been standardized in collaboration with SMRT.
  • Their vision is:
    Moving people in a safe, reliable and affordable way
  • And mission is:
    To achieve excellence for their customers, employees, shareholders and community
  • Their revenue are generally derived from the 4 segments:
    Firstly, bus fare.
    Secondly, train fare.
    Thirdly, advertisements on buses and trains.
    Last but not least, rental from commercial an shop space at bus interchanges and rail stations. Rental is also collected from private charted buses for corporate, commercial and private events.
  • Fixed assets form a major part of their assets. SBS has a fleet of over 3,000 buses, rail stations, interchanges and depots.
    The maintenance costs are high due to regular preventive and scheduled maintenances. These maintenances reduce the probability of vehicles breakdowns on the road and ensure effectiveness and efficiency of the bus services.
  • Strengths are attributes of the company that are helpful to achieving its objective.
    The strengths that I am going to further elaborate on would be 1) Product Diversity, 2) Product Quality, 3) Human Resources, 4) Technology
  • Firstly, product diversity.
    SBS has got 2 products, buses and rapid transit.
    For buses, SBS provide different types of bus routes and different type of bus services.
    To name a few, different type of bus services include Chinatown Direct, TownLink, Short Working Trips and Premium.
    For rapid transit, there is the North East Line, Sengkang and Punggol LRT.
    ---------------------------------------------------------------------------------------------------------------------
    Chinatown Direct: Introduced in 2005, these are routes that run from suburban towns to Chinatown via expressway.
    TownLink: Routes that consist of combined feeder services to provide links and improve connectivity between neighborhoods within the same town.
    Short working Trips (SWT): Routes that operate short haul trips between origin-destination pairs with high demand, such as the area near an MRT station. It operated a subset of the parent route and there can be more than one SWT per trunk route.
    Premium: A single trip from the designated neighborhoods during the morning peak hours on weekdays to Shenton Way and Raffles Place via expressway.
  • For product quality,
    SBS operates an Automated Vehicle Management System that allows for automatic vehicle location monitoring and communication between buses and Operations Control Centres.
    They also work closely with Authorities for smoother journeys. (Eg: Full-day bus lanes and mandatory give way to buses exiting at bus stops schemes)
    Closed-circuit television cameras installed to deter motorists from straying into bus lanes.
    Newer buses are fitted with Euro 5 engines which have better emission performance than standard Euro 5 models.
    More headroom and legroom spaces for better comfort.
    Wheelchair accessible bus (WAB) services are available. Buses are also designed to cater to such needs such as the special buzzers, dedicated wheelchair lot.
    Wheelchair-accessible routes have also been increased over the years.
  • SBS also have the Excellent Service Award (EXSA) to emulate, create service champions and professionalize services.
    Employees have won the following:
    Most Prestigious Individual Award
    SuperStar Award in the Land Transport category
    National Courtesy Award – Gold in the transport category.
    Good employees tends to stay with good welfare policy being implemented.
    SBS works closely with NTWU to ensure that bus captains eat healthily.
    They also pledged to integrate health promotion in the company policy in order to assist employees attain an optimal level of physical, mental and social well-being.
  • SBS is the first in the world to introduce information service via Short Message System (SMS). This enable commuters to get real-time bus arrival information.
    Iris journey planner offers travel solutions on how to get to destinations using their buses.
  • However, their main source of income still comes primarily from bus services as they only operates 3 rail services.
    SBS also centralize their business only in Singapore.
  • Partners- Moove Media, an advertising company of parent Comfort Delgro has helped sbs transit secure 100% advertising take-up rate on buses and an increase of advertising at bus interchanges and stations along North East Line of over 80%. This happened despite the poor economic year of 2008. Therefore we are opportunistic that our advertising segment will continue to do better in the coming year.
  • The partnership with Scania may be in danger as Scania cuts 2000 jobs amidst difficulty in maintaining sales, obtaining financing and business loans. Orders for new trucks dropped to 2,400 from 26,000 a year earlier, falling nearly 98%. Scania may shut down causing the orders of buses made to them from sbs transit to be cancelled and maintenance of the buses made unavailable.
  • Good morning Ms Wanna Lui, I am Ivian from Golden Phoenix Pte Ltd. And together with me is Shi Hui.Today, We will be sharing with you the analysis of sales turnover, fixed assets turnover, debt-equity and interest coverage ratio of the company, SBS Transit which we made from the financial statements.
  • The financial year end of SBS is on 31 December 2008 while for SMRT it is on the 31 March 2009. We chose 31 Mar 2009 instead of 31 Mar 2008 as there would be more common periods (i.e. from 1 Apr 2008 to 31 Dec 2008). Because of the different in the financial period, there would be a limitation to the analysis we had done.
  • From here, you can see that the turnover for SBS is $717m which has increased from last year and that the revenue is $729m.
  • For SMRT, they named their turnover as revenue here. So, to find revenue, we would need to add up the revenue account and other operating income account. The revenue has increased to $878m since last year.
  • So, to compute turnover, we would take: this year’s turnover-last year’s turnover to derive at the increase in amount of turnover. Following which, we would divide the difference over last year’s turnover to find out the percentage change of the turnover.
    Similarly, we do the same for the revenue.
  • The turnover increased by 8.6% from 2007 to 2008. Correspondingly, revenue also increased by 8.90% for the same period of comparison.
    As you can see, both SBS and SMRT have increased in their turnover and revenue this year by more than 5%.
  • We would now analyze the reason for the increase in turnover.
    SBS’s turnover has the following breakdown:
    They have bus, rail, advertisements and rental.
    We will be analyzing on bus and rail as they forms the majority of the turnover and that there was a significant increase over the year for both accounts.
  • There was an increase of 6.8% (571,985-535,421/535,421) in turnover for bus service.
    The increase in turnover for bus service was probably due to the fact that 20 new bus routes were being introduced, 19 were Premium Services that offer seating-room only. The fares for Premium Services were consider relatively high, ranging from $3.10 to $3.60.
  • This increase was also achieved on the back of a 5.7% increase in ridership due mainly to population growth and the Government’s push to promote the use of public transport. (Eg: Increase ERP gantries, distance-based through fares, more bus lanes, improved service times, greater contestability in both bus and rail, mandatory for motorists to give way to public buses exiting bus bays and substantial
    investment in rail infrastructure)
    In 2008, arrangements were made with Singapore’s two other telco service providers to offer iris via sms to their subscribers. As a result, all mobile phone subscribers here are now able to access iris via sms.
  • Ridership for the North East Line and two LRT system grew by 15.5 % and 14.4% respectively as compared to 2007. 85 new trips were added to run every week to cater to the increase in ridership on the North East Line. Additional trips were also introduced for Punggol East LRT and Sengkang West Loop. These actions undertaken by SBS had caused an increase in turnover of 15.8%(101,457-87,619/101,457) for rail services.
  • There was a slight increase of 2.2% of turnover for advertisements. Advertisement revenue came from bus, in-train, interchange and train station advertising. Placements at bus interchanges and train station along North East Line also increased significantly by over 80%.
    More concept buses were launched. (Eg: Hp Buses, Magnum, Nokia, NTU, F1)
    Image source: http://www.sgbuses.com/v/sbst/ads/hp/SBS2837R-Int-HP-SideSeats.JPG.html
    http://www.sgbuses.com/d/6544-3/SBS2837R-Int-HP-CenterProduct.JPG
    http://www.sgbuses.com/d/6553-3/SBS2837R-Int-HP-RearSeats.JPG
    http://www.stomp.com.sg/ss/070124_ss_nokiabus2.jpg
    www.flickr.com/photos/snapsg/3061070516/
    http://img28.imageshack.us/img28/950/117225858BkMHOK_ph3.jpg
  • There was a substantial increase of 82.9% (12,709-6,947/6,947) of turnover for rental business.
    This is largely attributed to more new shop being leased out at the bus interchange.
    Image source: http://photos.igougo.com/images/p178066-Singapore-Toa_Payoh_bus_interchange.jpg
    http://bp0.blogger.com/_CnQw3Hm5Yiw/SABNYEbuuiI/AAAAAAAAB7c/5uAPsTmW3A4/s400/Jurong+East+Bus+Interchange.jpg
  • While for SMRT, the turnover has increased by 9.58% from 2008 to 2009. Correspondingly, revenue also increased by 10.04% for the same period of comparison.
    The turnover of SMRT includes passenger revenue, taxis rental, rental revenue, advertising revenue, sales of goods and engineering. Among all, there was an tremendous increase in passenger revenue and rental revenue. However, we would only concentrate on the passenger revenue as we compare them to SBS’s.
  • Passenger revenue includes Buses, MRT and Bukit Panjang LRT.
  • We would first analyse SMRT trains (both MRT and LRT)
    As you can see from the graph, MRT would be the orange bar and LRT would be the blue bar.MRT revenue has increased by 8.6% to $474.3m as the ridership for the year has increased to 8.7%.While for LRT revenue, it was increased by 7.1% to $9.2m as the ridership for the year was increased by 5.4%.
  • The reason for the increase in ridership for both MRT and LRT is due to:
    The opening of Pioneer and Joo Koon stations which adds to the convenience of the nearby residents and employees in Tuas area.
    The introduction of Circle Line also contributes to the increase in ridership.
    Besides that, SMRT has implemented several service initiatives to enhance the commuter’s travel experience such as additional train trips which contributes to the increase in ridership.
  • Earning before interest tax
  • Now, we will move on to the bus services. As you can see from the graph, the green bar represents the total bus fare for the years. The ridership grew by 3.9% for the year. Correspondingly, the revenue of bus increased to $207.2m
  • The increase in ridership might be due to the introduction of 67 eco friendly buses for the year, launching nine new premium bus services and the Go Green with SMRT promotion which encourage more people to take public transport as they stand a chance to win 1 year free bus rides.
  • Now, let’s compare SBS with SMRT’s turnover.
    SBS has got 8.6% increase in turnover for 2008 as compared to 2007. On contrary, SMRT, its competitor has got 9.58% in turnover for 2009 as compared to 2008 which means that SMRT had done better during the year.
    As you can see, most of SBS’s income is derived from bus and rail while for
  • The reason for SMRT being able to perform better than SBS is because SMRT has wider product diversity such as engineering and taxis which SBS does not have. The Taxis revenue constitutes 8.16% of the total SMRT’s turnover. It was further helped by the introduction of new MRT stations which includes the Joo Koon and Pioneer Stations.
  • Now let’s move on to the analysing of gross profit.
    Because both SBS Transit and smrt are service rendering industries and thus they do not have cost of goods sold and which means they do not have gross profit.
    Thus, we decide to include the staff costs, fuel and electricity costs as a directly attributable costs to the turnover. Before selecting this two accounts, we had actually made assumptions.
  • As you know, gross profit is derived from turnover less expenses that are directly attributable to the revenue. In this case, we have to select costs that directly helped in generating sales for the company.
    Before selecting the relevant expenses, we scanned through the income statement of both company to make sure that the expenses that we are accounting as directly attributable appears in both company’s statement.
    Fuel and electricity costs are costs used by the buses, MRT and LRT to run. It is a directly attributable cost as the buses, MRT and LRT needs them to operate and generate income.
    While for staff costs, it is directly attributable because without bus captains and train driver, the buses and trains would not be able to move, and no income would generate because of that.
  • Thus, SBS’s gross profit would amount to $245m for this year, a decrease from last year’s
  • This is the income statement of SMRT. For SMRT, their directly attributable cost would be staff and related costs and electricity and diesel costs. AS you can see, they forms majority of the expenses of the company.
  • So, SMRT’s gross profit would amount to $482m, an increase as compared to last year.
  • The formula to compute GP margin would be Gross profit/sales.
    As you can see, SBS generated a lower GP margin of 34.2% as compared to SMRT with a GP margin of 54.9%
  • Why is it that the gross profit for 2008 was 34.2% as compared to 37.98% for 2007?
    The decrease in percentage point for SBS would be that there was an increase in fuel and electricity costs during the first 8 months of the year, i.e Jan 2008- Aug 2008. Also, more bus captains were hired due to increase in train trips and introduction of bus routes, resulting in the increase of staff costs.
  • While for SMRT, there was a decrease in percentage point in GP margin due to significant increase in electricity and diesel costs and staff costs.
  • Besides the fact that the electricity price and diesel cost went up during the year, electricity consumption was higher as well. This led to the increase in electricity and diesel costs.
    While the increase in headcount was attributed to preparations for Circle Line Stage 3,
    increased train runs and increase in the number of bus service leaders. There was also salary adjustments during the year. All this factors cause an increase in staff and related costs.
  • By comparison, we can see that SBS has a bigger decrease in 3.72 percentage point as compared to SMRT’s decrease in percentage point of 1.07. The reason that caused both the company to have a decrease in GP margin would be the increase in diesel and electricity prices which affects the industry as a whole.
    However, SMRT still did better than SBS as SMRT bought supply of diesel at discount off market prices. The staff costs was higher for SBS probably due to the fact that SMRT had higher job credits to offset staff costs since they have greater number of employees. Also, the training program for SBS Bus captain would increase the staff costs.
  • Net Profit Margin is derived from net profit/sales.
    SBS has decreased in net profit margin as compared to last year.
    While for SMRT, there was a slight decrease only.
  • As usual, let us look at SBS first.
    Their net profit margin for 2008 was 5.66% as compared to 7.58% in 2007. There was a decrease by 1.92 percentage point mostly due to the decrease in gross profit margin as discussed earlier on.
  • While for other expenses besides staff costs and fuel and electricity costs, there was slight increase for both Repair and maintenance expenses and premises costs. This could be due to the addition of new buses which would require more maintenance as there might be a new way in maintaining the buses. There were also few air-conditioned bus interchange introduced such as the Boon Lay Interchange and Ang Mo Kio Interchange.
  • This is SMRT’s breakdown of their expenses. As you can see, staff and related costs, along with depreciation and other expenses forms a bigger part of the total expense.
  • The net profit of SMRT decreases by 0.18 percentage point. Similarly, it is also affected by the decrease in gross profit.
    There were other reasons that might lead to this such as the disposals of taxis, increase depreciation due to new assets such as the new handicapped lifts situated at each mrt station.
  • SBS had a bigger decrease in percentage point as compared to SMRT as SBS’s gross profit is lower than SMRT by half.
    This could be due to the introduction of air conditioned bus interchange by sbs and the purchase of over 400 new buses for the year.
  • In summary, SMRT is healthier.
  • Are the profits of the company, SBS adequate and sustainable?
    We would think its sustainable as oil price has dropped after august 2008, thus fuel price would be cheaper and this reduce the costs of fuel as a result. Also, the economic has been picking up itself from the crisis in 2007 and now more people have the ability to spend.
    Also, The IR that is opening next year would also increase the fare revenue of the company.
    And now, I would like to pass on the presentation to Shi Hui to share with you about the fixed assets turnover ratio.
  • The formula for fixed assets turnover is sales over net fixed assets
  • Let’s look at the fixed assets turnover for SBS
  • Fixed asset ratio
  • The fixed asset ratios for 2008 and 2007 are 1.96 and 2.63 respectively.
  • Fixed asset ratio
  • Fixed asset ratio
  • There was an increase of 6.8% (571,985-535,421/535,421) in turnover for bus service.
    The increase in turnover for bus service was probably due to the fact that 20 new bus routes were being introduced, 19 were Premium Services that offer seating-room only. The fares for Premium Services were consider relatively high, ranging from $3.10 to $3.60.
    This increase was also achieved on the back of a 5.7% increase in ridership due mainly to population growth and the Government’s push to promote the use of public transport. (Eg: Increase ERP gantries)
    Ridership for the North East Line and two LRT system grew by 15.5 % and 14.4% respectively as compared to 2007. 85 new trips were added to run every week to cater to the increase in ridership on the North East Line. Additional trips were also introduced for Punggol East LRT and Sengkang West Loop. These actions undertaken by SBS had caused an increase in turnover of 15.8%(101,457-87,619/101,457) for rail services.
    There was a slight increase of 2.2% (30,885-30,220/30,220)of turnover for advertisements. Advertisement revenue came from bus, in-train, interchange and train station advertising. Placements at bus interchanges and train station along North East Line also increased significantly by over 80%.
    More concept buses were launched. (Eg: Hp Buses, Magnum, Nokia, NTU, F1)
    There was a substantial increase of 82.9% (12,709-6,947/6,947) of turnover for rental business.
    This is largely attributed to more new shop being leased out at the bus interchange.
  • Here is a summary. There is an overall increase of 8.6% for turnover.
  • There was an increase of 45.8% (366,555-251,487/251,487) of fixed assets in FY2008.
  • There was an increase of 45.8% (366,555-251,487/251,487) of fixed assets in FY2008.
    Substantial amounts of $9,934,000, $1,265,000, $1,880,000 were spent on purchasing buses, leasing buildings and workshop, machinery tools and equipment respectively.
  • The significant amount spent on purchasing the buses were used to cater to the needs of the growing demand of bus services and also to achieve the target of having a scheduled frequency of 10 minutes or less. 400 new Euro IV were delivered in 2008 to provide greater comfort and safety to commuters. Another 400 Euro V were ordered and they would be Asia’s first European Enhanced Environmentally Friendly Vehicles.
  • New bus park and bus depot located at Ayer Rajah Crescent and Bedok North respectively were being leased from JTC under temporary occupation license. This is essential to provide sufficient bus parking and maintenance facilities to the buses in different areas of Singapore.
  • More buses would mean that there would be an increase in maintenance work. Additional maintenance assets had to be purchased to cater to such needs. Maintenance work is essential even for new buses as it ensure safety and smooth journey.
  • Fixed asset ratio
  • In our opinion, the Asset Turnover Ratios between the 2 companies are quite extreme with SBS close to 2 and SMRT below 1.
    A high ratio would indicate that SBS:
    1) Might be a more asset-efficient company
    2) Might have better asset management policies and procedures
    3) Might have highly depreciated group of fixed assets.
    A low ratio in SMRT could indicate low or declining sales volume that does not warrant further investment in assets.
  • I will now continue with the Financial structure of SBS & its competitor, SMRT
  • Debt to Equity Ratio
  • This is the formula for calculating debt to equity ratio
  • I shall start with SBS
  • From the balance sheet, it could be noted that total liabilities increased in 2008 compared to 2007. Total equity also increased from 2007 to 2008.
  • Through the computation of debt to equity ratio, we can come to the conclusion that the increase in total liabilities is more than that of the increase of total equity.
    The debt to equity ratio has increased by 0.0556 when comparing year 2007 and 2008.
  • Therefore we can conclude that the increase in debt to equity ratio for the year 2008 is from an increase in liabilities which is higher than the increase in equity and liabilities for year 2008 is higher than that of 2007.
  • Increase by $18,919K or 2.49% due mainly to the current liabilities portion of the total liabilities.
  • Read from slides
  • There is a increase in equity of $21,710 due to the addition of profit for the year and lesser dividends paid.
    Therefore these factors lead to an increase in debt to equity ratio for the year 2008 as compared to the year 2007
  • Profit for the year amounted to $40.6m. Net profit accounts for 15% of total equity of $257.2m. Dividends paid amounted to $19.2m. Dividends account for 6% of total equity. All these factors contributed to the increase in the debt to equity ratio.
  • Now I will talk more about SBS’s main competitor SMRT.
  • This is the balance sheet of SMRT for the year ended 31 March 2009. In order to calculate the debt to equity ratio, we need to retrieve the total liabilities and total equity figures.
  • For financial year 2009, the ratio is 1.0794, while for financial year 2008, the ratio is 1.123. There is a net decrease by 0.0436.
  • In SMRT’s case, the decrease in the ratio is due to a smaller increase in liabilities as compared to the increase in equity.
  • Now I will share with you the analysis of the ratios.
  • The 2.48% increase in liabilities was mainly due to higher trade and other payables, lower deferred grant balance and lower current tax payable. I would only talk about the first 2 points as current tax payable is dependant on many factors that are uncontrollable by the company.
  • The huge increase in trade and other payables of $51.2m was due to the mid-life upgrade of trains during the year. The mid-life upgrade of trains were introduced to improve their service through the following ways.
  • The increase in liabilities was offset partially by the decrease in deferred grant which was due to the amortization for the year. This relates to the grant given by LTA for assets under the 30 year Licence and Operating Agreement over the control of the MRT system in Singapore.
  • Equity increased 6.64% due to the addition of profit for the year to accumulated profits, which was partially offset by dividends paid.
  • Profit for the year amounted to $162.7m. For dividends, final dividends for 2008 of $90.9m and interim dividends for 2009 of $26.5m. All these factors contributed to the decrease in the debt to equity ratio.
  • Now we will continue with the comparison between both companies.
  • The changes in debt to equity ratios for both companies were very small. This means that both companies are very consistent in their financing strategies.
    SBS began to leverage more, while SMRT began to leverage less, thus the increase and decrease in debt to equity ratios.
    This may be indicative of a shift in financing strategies to become more aggressive for SBS and more conservative for SMRT.
    The increase in leverage may also be due to the increase in trade payables which relates to expenses like fuel and electricity cost which increased during the year 2008. The rise of these costs could be explainable due to the fact of a change in its external environment which it operates. During the year 2008, price of both oil and electricity increased at a higher rate as compared to 2007. Therefore, the company has to incur more debt to finance its operations.
  • From the debt to equity ratios of both companies, we can see that they employed a conservative financing strategy, and are exposed to low risks of insolvency. They receive almost equal amounts of financing from both debt and equity which forms an optimal mix of debt and equity.
    However, being parts of a low risk industry, both companies should employ a more aggressive strategy. Although risk of insolvency would increase, the cost of borrowing would decrease, which is beneficial to the company.
  • I will now talk about interest coverage ratio
  • The formula for calculating interest coverage ratio is by using earnings before interest and tax and dividing it by interest expense.
  • SBS had no interest expense for the year ended 31 Dec 2008. It is therefore meaningless to compare interest coverage ratio, since SBS will always have a higher interest coverage ratio. This might be because borrowings are made at ComfortDelgro’s level.
  • With no interest expense, the interest coverage is infinity.
  • In summary, the financial structure of SBS is quite balanced, with a mix of debt and equity. It employs a rather conservative financing strategy, which means that there is low risk of insolvency and high cost of borrowing. They also have no interest-bearing loans. There is a trend of increasing leverage due mainly to higher expenses. The company can be more aggressive because it is in a low risk industry.
  • The increase in provision for accident claims might be due to an increase in probability of accidents. This could be attributed to the increase in number of trips and ridership.
  • Now I will present the stock market ratios my team has analyzed.
  • We will look at earnings per share first.
  • 13.19 cents can be earned on each outstanding SBS shares. The earnings per share for SBS had decreased due to decrease in profits.
    10.70 cents can be earned on each outstanding SMRT shares. The earning per share for SMRT had increased due to an increase in profits.
    However, SBS shares are still more attractive as they generate a higher earnings compared to SMRT despite a drop in earnings from the previous year.
    The drop in earnings is largely attributable to the hike in fuel price in 2008. With fuel price falling, we would expect an increase in SBS’s earnings in future.
  • 13.19 cents can be earned on each outstanding SBS shares. The earnings per share for SBS had decreased due to decrease in profits.
    10.70 cents can be earned on each outstanding SMRT shares. The earning per share for SMRT had increased due to an increase in profits.
    However, SBS shares are still more attractive as they generate a higher earnings compared to SMRT despite a drop in earnings from the previous year.
    The drop in earnings is largely attributable to the hike in fuel price in 2008. With fuel price falling, we would expect an increase in SBS’s earnings in future.
  • 13.19 cents can be earned on each outstanding SBS shares. The earnings per share for SBS had decreased due to decrease in profits.
    10.70 cents can be earned on each outstanding SMRT shares. The earning per share for SMRT had increased due to an increase in profits.
    However, SBS shares are still more attractive as they generate a higher earnings compared to SMRT despite a drop in earnings from the previous year.
    The drop in earnings is largely attributable to the hike in fuel price in 2008. With fuel price falling, we would expect an increase in SBS’s earnings in future.
  • As the P/E ratio shows the amount investors are willing to pay for each dollar of the firm’s earnings, the higher the P/E ratio, the higher the growth prospects.
  • For SBS Transit, the change is volatile as there is a decrease of 5.01 across the two years.
  • There is also a decrease of 4.09 across the two years.
  • In comparison, SMRT has a higher P/E ratio than SBS Transit by 1.41. This shows that the investors are more willing to pay for each dollar of SMRT’s earnings.
  • The above ratio shows that the shares were traded at a much lower premium in 2008 than in 2007.
    However, we must bear in mind the limitations that historical earnings may not reflect future earnings and market prices can move based purely on rumour and speculation.
  • The formula for dividend yield is dividend per ordinary share over share price.
  • May represent that it would be more attractive to invest in SBS now as share price of a share is lower than previous year yet dividend yields increase by 0.01. meaning buying two shares of SBS at 2008 is almost equivalent to the price of 1 share during 2007 yet dividend yield will increase by 0.02 at the price.
  • There shows the dividend per ordinary share and share price as at year end. Assume that the dividends proposed were approved.
  • In summary, SBS increase by 0.01 while SMRT decrease by 0.01 as compared to the prior year.
  • Above shows the interest rate for treasury bills and fixed deposit.
  • For every $1 dollar of shares invest in SBS, there will be a return of 4cents and 3cents for 2008 and 2007 respectively.
    The rate of return of treasury bills and fixed deposits are much lower.
    Investing in SBS’s shares is therefore more profitable.
  • For value investors, P/B remains a tried and tested method for finding low price stocks that the market has neglected. If a company is trading for less than its book value (or has a P/B less than 1), it normally tells investors one of two things: either the market believes the asset value is overstated, or the company is earning a very poor (even negative) return on its assets
    Therefore investors are likely to steer away companies with PB ratio less than 1 as there is a chance that asset value will face a downward correction by the market, leaving investors with negative returns.
    A company with a very high share price relative to its asset value, on the other hand, is likely to be one that has been earning a very high return on its assets. Any additional good news may already be accounted for in the price.
  • Mid of year 2007 – early 2009 was a turbulent period for the market as US is being hit by the subprime mortgage crisis, which affected most economies worldwide including Singapore. From the graph, we can see that the market gradually descend from mid of 2007 to early 2009, which affected the end of year share prices of SBS n SMRT for the year 2009.
  • This results in a drop of $1.23 or 41.97% in SBS’ share price, SMRT also sees a drop in its share price of $0.29 or 15.93%. Even though P/B ratio for both companies dropped in 2009 compared to 2008, they are still >1.
    This shows that share price has not dropped below actual book value of the company per share and is actually valued at more than its worth, which benefits shareholders. But we may not know whether the stocks are actually over-valued as we cannot compare these ratios to the industry average.
    Therefore we can conclude that the stocks are doing well and may face a downward correction since SBS’s share price is more than 100% more than its net asset backing per share, which may be overvalued, so we must compare it the its ROE as companies which are not over-valued will have its ROE grow simultaneously with its P/B ratio
  • These factors may also lead to drops or increases in share prices although they are not that of a significant factor as compared to the subprime mortgage crisis which affected investors’ confidence during this period.
  • We can conclude that SBS has been successful in creating value for its shareholders as we can interpret that the market favours SBS for its Price-book ratio is relatively high, signifying that SBS has been earning very high returns on its assets and that its book value has been accounted for in its share price.
    But precaution has to be made by checking other ratios to ensure that SBS is not overvalued by the market.
  • Current stock price which hovers around $1.80 would be a reasonable buy for investors as the price is cheaper as compared to 2008 which was around $2.93. Although it is slightly higher than 2009’s price of $1.70, it is still a good price considering factors which was brought out by the ratios as explained.
    Although EPS decreased at 2009 compared to 2008, we should not let this factor deter us in investing in SBS as the economic environment during the year 2008 was turbulent along with the rising oil and electricity prices, decrease in earnings would be unavoidable. Despite the economic turmoil,SBS was still able to report EPS of $13.19 for year 2009, therefore the company is still profitable with an increase of profit of 8.53% which shows that revenue was not significantly impacted during the period of financial turmoil.
    Increase in dividend yield would be HUGELY beneficial for investors who aim to invest in SBS for mid-term to long-term, specially a 5 year range since dividend yield is higher than 2008, investers like ms lui can buy in more shares so dividends paid to her will be more than if she invested during 2008. Besides this factor, SBS is a company with stable financial standings therefore it will be practical to invest in it specifically for dividends instead of speculating on its share price although it is highly expected to increase further for the next couple of years.
    Net asset backing per share ratio is favourable as the increase in the ratio shows that the company has enough cash to sustain its operations in case any major financial turmoil were to reoccur, it also represents that the company is able to pay back its shareholders after paying back its liabilities.
    Although there is a decrease in P/B ratio, P/B ratio of sbs is still above 1 at 2.0335 which shows that the market believes that SBS can continue to create value for its shareholders. Therefore, share price of SBS may continue on a upward trend unless a market correction occurs which will bring SBS’ share price down near to its book value.
    Therefore we conclude that the current share price would be attractive for Ms Lui to invest for 5 years despite our concerns on the trends regarding the share price 5 years from now as she would be getting relatively good return on dividends for the amount of money invested in SBS.
  • First, I will go through the SWOT analysis we had prepared. I will cover some significant points in their strengths, weaknesses, opportunities and threats.
    For their strengths,
    SBS has a high product diversity, with revenue streaming buses, MRT and LRT.
    They place a high focus on product quality, which can be seen from their purchase of new and better buses.
    They have excellent staff who have won many awards and advanced technology like the IRIS system as well.
    I will now move on to the weaknesses.
    SBS has 2 main weaknesses. The first is that they depend heavily on the revenue from their bus service. However, the risk on this heavy dependence is gradually reduced as they increase their product diversity.
    Their business is also centralized in Singapore, which restricts their expansion plans
    The future presents several opportunities for SBS. The increasing public transport ridership, expansion of RTS network and growth in the transport industry present opportunities for SBS to gain market share and increase revenue.
    However, when LTA becomes the central bus network planner, they face the possible risk of losing more bus services to SMRT, but could also grow if they gain more market share.
    The other main threats are from the implementation of the integrated fare system, which would mean lower revenue, and SMRT’s future expansion plans. This includes the opening of the Circle Line, which would decrease the market share of SBS in terms of the revenue from MRT.
  • First, let us look at the profitability ratios and changes. You can see that both companies have increased turnover and revenue, although SBS has a smaller increase. SBS also experienced a greater drop in gross and net profit than SMRT. These were mainly due to SMRT being a bigger company with more diversified operations. It is however, important to note that the main cause of this is the fuel and electricity cost. SBS was more adversely affected because a higher percentage of its revenue generating products incur huge fuel and electricity costs. With the decrease in oil price and recovery of the economy, SBS is expected to experience better profit growth as compared to SMRT in the future.
    Next, we will look at the fixed asset turnover ratios. We can see that the fixed asset turnover has decreased for SBS and increased for SMRT. This is because SBS took the opportunity to invest extensively while the cost was low. When the economy recovers, SBS would be more ready to expand its operations, which possibly means higher revenue in the future. This also means that SBS is a more asset-efficient company with better asset management policies and procedures.
    The financial structure of both companies are similar. They have a balanced mix of debt and equity financing. In a low-risk industry where the demand for the services is so inelastic, the companies can afford to borrow more, so that there will be lower costs of borrowing. A low ratio means that there is low risk of business failure and low risk that shares invested would be lost.
    Looking at the trend, SBS has begun to leverage more, which means lower borrowing costs, which is beneficial in bringing growth to the company.
    From these figures we can calculate the return on equity
  • Generally from liquidity ratios, we can see that the company’s liquidity position has become riskier. However, this is due mainly to the huge investment in fixed assets for expansion.
    Due to the company’s nature of business, the accounts receivable and inventory turnover are not very significant. Although they reflect badly on the sustainability of its operations, the impact is minimal.
    The stock market ratios have been greatly affected by the drop in investors’ confidence in the market due to the financial crisis. Stock markets all over the world have been greatly hit by this, and the share prices of SBS was affected as well.
    Generally, the earnings per share, net assets backing per share and price-book ratio are favourable in SBS case. The price-earning ratio and dividend yield are slightly worse than SMRT due to a heavier impact on its profits
    The earnings per share of SBS is higher, which shows more earnings can be generated from the financing of one share. Although SBS’s EPS has dropped, it is still higher than SMRT, which makes it more attractive.
  • Ignoring all the increases in oil-related costs and poor economic conditions, you can expect continued profit growth in the future.
    The heavy investing activities provide the basis for future expansion and growth.
    The balanced financing from equity and debt and the low risk industry the company is in reduces the chances of business failure
    The stock price has been driven to a very low point, which means it is a good time to buy, as prices are expected to increase as the market recovers
    The return from shares in the form of dividends is high, as compared to other forms of risk-free investments
    The shares are heavily backed by net assets, which helps reduces the risk of losing all investments during liquidation
  • Transcript

    • 1. BACKGROUND INFORMATION
    • 2. Timeline
    • 3. Background • Duopoly • Parent Company: Comfort Delgro • Prepared to bid for future MRT lines starting from downtown line. • Bus and Train fares have been standardized
    • 4. Moving people in a safe, reliable and affordable way VISION
    • 5. To achieve excellence for their customers, employees, shareholders and community MISSION
    • 6. Revenue derived from • Buses: Bus fare • MRTs, LRTs: Train fare • Advertisement on Buses and Trains • Rental: Shop space at bus interchanges and rail stations • Rental: Private chartered buses
    • 7. • Fixed assets form a major part of their asset • Maintenance costs are high
    • 8. Strengths
    • 9. Product Diversity
    • 10. Product Quality • Reliability of Services – Automated Vehicle Management System – Work closely with Authorities for smoother journeys – Installation of closed-circuit television cameras • Safety and Comfort – Newer buses fitted with Euro V engines – More headroom and legroom spaces – Wheelchair accessible bus (WAB) services
    • 11. Human Resources • Excellent Service Award (EXSA) • Employees have won the following: – Most Prestigious Individual Award – SuperStar Award in the Land Transport category – National Courtesy Award – Transport Gold Award • Good welfare policy – National Transport Workers’ Union (NTWU) – Health promotion policy
    • 12. Technology
    • 13. Weaknesses
    • 14. CUSTOMERS
    • 15. Year MRT LRT Bus Taxi FY94/95 709 2,920 FY95/96 760 3,032 FY96/97 873 3,101 FY97/98 923 3,121 FY98/99 949 3,158 FY99/00 1,003 14 3,197 FY00/01 1,061 40 3,257 FY01/02 1,068 40 3,214 871 FY02/03 1,080 40 3,123 834 FY03/04 1,220 53 2,972 801 FY04/05 1,276 57 2,788 876 FY05/06 1,338 71 2,785 991 FY06/07 1,435 75 2,853 945 FY07/08 1,564 81 2,969 927 FY08/09 1,720 89 3,085 907 Average Daily Ridership ('000 passenger-trips) Expected increase in future ridership - Higher population growth - Increased bus service routes - Increased tourism due to major events like the opening of Integrated Resorts
    • 16. Household Interview Travel Survey Average frequency of journeys per person per day increased from 1.92 to 2.12
    • 17. Household Interview Travel Survey Public transport share decreases as home distance from MRT increases
    • 18. Opportunities Gain market share through - Introducing new bus service routes - Increasing frequency of bus services to and from MRT stations - Advertising
    • 19. POLITICAL & REGULATORY ENVIRONMENT
    • 20. Land Transport Masterplan • LTA as central bus network planner • Integrated fares • Expanding RTS network
    • 21. LTA as Central Bus Network Planner
    • 22. Opportunity/Threat Gain/Lose market share • Depends on – their position as a bus service provider – the decisions of LTA to assign bus services
    • 23. How through-fare will remove transfer penalty Today, if a commuter makes a bus-only journey with one transfer, for example 3.0km on the 1st bus and 5.0km on the 2nd bus, he will pay a fare of $1.31 with his ez-link card ($0.67 for 1st bus trip + $0.89 for 2nd bus trip – $0.25 transfer rebate). When distance based fare is introduced, the fare will be computed purely based on the total distance travelled. Based on today’s fare level, he will pay $1.09 for his 8.0km journey. Integrated Fares • Distance-based through-fare structure • Removes transfer penalty • Fare based on distance travelled
    • 24. Threat Reduced revenue due to change in fare structure
    • 25. Expanding RTS network • Plans to double the RTS network from 138km today to 278km by 2020 • Ongoing – Circle Line – Downtown Line • Planned Lines – Thomson Line – Eastern Region Line – Tuas Extension to the East West Line – North South Line extension •Plans to double the RTS network from 138km today to 278km by 2020 •Ongoing -Circle Line -Downtown Line •Planned Lines -Thomson Line -Eastern Region Line -Tuas Extension to the East West Line -North South Line extension
    • 26. Opportunities • Grow the company by tendering for the operator rights for the new lines • Would increase revenue in the long run
    • 27. ECONOMIC ENVIRONMENT
    • 28. Economic Environment • Projected during the IMF meeting that in 2010 GDP will increase by 3.7% in ASEAN. • Transport sector would be affected positively as well.
    • 29. Economic Environment Relating to the statistics above, for the year 2008,there was real growth for the transport & storage industry at 3.1%.
    • 30. Economic Environment Land transport has a growth of 2.2% during the year 2008
    • 31. COMPETITORS
    • 32. Background • Incorporated on 6 March 2000 • Provides transport service, operation and maintenance service, engineering consultancy and project management services. • 2nd largest public-transport company after Comfort Delgro
    • 33. SMRT Buses Ltd • Previously known as Trans Island Bus Services (TIBS) • Incorporated as TIBS on 31 May 1982 • Renamed to SMRT Buses Ltd on 10 May 2004 • Main and only competitor: SBS Transit Ltd
    • 34. SMRT Trains Ltd • Incorporated on 6 August 1987 as Singapore MRT Ltd • Renamed as Singapore Mass Rapid Transit (SMRT) Corporation in 2004 • Main and only competitor: SBS Transit
    • 35. VS
    • 36. SMRT obtained operating rights to Circle Line
    • 37. Opportunities & Threats
    • 38. References • http://lee7accommodation.blogspot.com/2008/07/condominiums-near-to- mrt.html • http://www.sbstransit.com.sg/index.aspx • http://www.smrt.com.sg/about_us/our_business.asp • http://lowkayhwa.com/blog/?m=200812 • http://www.sgbuses.com/ • http://www.bus-and-coach-photos.com/picture/number1860.asp • http://nocturne.noctalis.com/codex.cgi?+Living_in_Sin+_I_Raymond_Lim • http://www.letstravelplease.com/Chinatown_Singapore_photos.htm • http://propertyhighlights.blogspot.com/2007_11_14_archive.html • http://blublur.blogspot.com/2007/07/feature-bedok-south-and-north.html • http://juskawaime.wordpress.com/category/singapore/ • http://i254.photobucket.com/albums/hh101/SBS7483U/SBS7310K_021_1.jpg • http://www.ps21.gov.sg/challenge/2009_07/images/lta_masterplan.jpg • http://www.transitlink.com.sg/images/tl_guide/sklrt.gif • http://en.wikipedia.org/wiki/SWOT_analysis
    • 39. INTERPRETATION OF FINANCIAL STATEMENTS (2)
    • 40. Financial Year Financial Year End 31 December 2008 31 March 2009
    • 41. ANALYSIS OF TURNOVER/REVENUE
    • 42. Turnover/Revenue
    • 43. •Turnover increased by 8.6% from 2007 to 2008. Correspondingly, revenue also increased by 8.90% for the same period of comparison. Turnover Revenue SBS (717,036-660,207) / 660,207*100% = 8.61% (729,643-670,042) / 670,042*100% = 8.90% SMRT (878,951-802,124) / 802,124*100% = 9.58% (905,619-822,993) / 822,993*100% =10.04% Turnover/Revenue
    • 44. Turnover
    • 45. Bus Services • Increase of 6.8% ($571,985- $535,421/$535,421) in turnover for bus service  New Bus Routes Introduced  20 new bus routes were being introduced, 19 were Premium Services that offer seating-room only  Fares for Premium Services were considered relatively high, ranging from $3.10 to $3.60
    • 46. Bus Services (Cont’)  Increase in Ridership  Population growth  Iris via sms offered to Singapore’s two other telco service providers  Government’s push to promote the use of public transport
    • 47. Rail Services • Increase of 15.8% ($101,457- $87,619/$101,457) in turnover for rail services  Increase Ridership  MRT: 15.5%  LRT: 14.4%  85 new trips were added to run every week  Additional trips were also introduced for Punggol East LRT and Sengkang West Loop
    • 48. Advertisements • Slight increase of 2.2% ($30,885- $30,220/$30,220) of turnover for advertisements • Placements at bus interchanges and train station along North East Line also increased significantly by over 80% • More concept buses were launched
    • 49. Advertisements
    • 50. Rental • There was a substantial increase of 82.9% ($12,709-$6,947/$6,947) of turnover for rental business. • This is largely attributed to more new shops being leased out at the bus interchange.
    • 51. Turnover • Turnover has increased by 9.58% from 2008 to 2009. • The increase in turnover was mainly attributable to the followings: – Increase in passenger revenue – Growth in rental revenue
    • 52. Passenger Revenue
    • 53. SMRT Train operation MRT Revenue increased by 8.6% ($37.4m to $474.3m) FY2009 ridership rose 8.7% (469.3 million in FY2008 to 510.2 million in FY2009) LRT Revenue increased by 7.1% ($8.6m to $9.2m) Full-year FY2009 ridership increased 5.4% (15.1 million in FY 2008 to 16.0 million in FY 2009)
    • 54. SMRT Train operation (Cont) • Opening of Pioneer and Joo Koon Stations • Introduced numerous service initiatives to enhance commuters’ travel experience: – additional train trips – active route maps – service ambassadors
    • 55. Bus Services • Revenue increased by 5.8% in FY2009 (195.9 million to 207.2 million) • FY2009 ridership grew 3.9% (277.3 million to 288.0 million)
    • 56. Bus Services • Added 67 Euro V buses committing to a greener organization • Expanded services by launching nine premium bus services • ‘Go Green with SMRT’ Promotion from Mar’08- Oct’08
    • 57. Cross-sectional analysis • SMRT is a parent of a wider product diversity. • SBS is a subsidiary of Comfort Delgro SBS 8.61% SBS 8.61% SMRT 9.58% SMRT 9.58%
    • 58. Cross-sectional analysis- Product Mix SMRT • % revenue from MRT>Bus • Greater Product Diversity • Has other forms of revenue which are more profitable (such as taxi service- $71.1 million) SBS • %revenue from Bus>MRT • Smaller product Diversity • Other form of revenue not as profitable as Bus and MRT •Gross/Net Profit Margin from MRT is higher. •SMRT appears to be more profitable in terms of profit margin, turnover and revenue.
    • 59. ANALYSIS OF GROSS PROFIT
    • 60. SBS
    • 61. Assumptions • Gross profit is derived from turnover less expenses that are directly attributable to the revenue. • Fuel and electricity costs – Buses use fuel and MRT, LRT use electricity for operation. – Buses, MRT and LRT are main source of income. • Staff costs – In order to earn revenue, buses and MRTs need to be operated by Bus Captains.
    • 62. Gross Profit Margin • Gross Profit is derived from: SBS 2008 $’000 2007 $’000 Turnover 717,036 660,207 Less: Cost directly attributable to Revenue Fuel and electricity costs (184,114) (128,658) Staff Costs (287,743) (280,819) Gross Profit 245,179 250,730
    • 63. SMRT
    • 64. Gross Profit Margin • Gross Profit is derived from: SMRT 2009 $’000 2008 $’000 Revenue 878,951 802,124 Less: Cost directly attributable to Revenue Electricity and diesel costs (118,783) (89,704) Staff and related costs (277,384) (263,461) Gross Profit 482,784 448,959
    • 65. Gross Profit Margin Gross Profit margin= Gross Profit/Sales 2008 2007 SBS 245,179/717,036 =34.2% 250,730/660,207 =37.98% 2009 2008 SMRT 482,784/878,951 =54.9% 448,959 /802,124 =55.97%
    • 66. Analysis • Gross profit margin for 2008 was 34.2% as compared to 37.98% for 2007. • The decrease of 3.72 percentage point was attributed to – Increase of 43.1% (compared to last year) in fuel and electricity costs for the first 8 months of the year. – 325 more bus captains were hired as train trips increase and 20 new bus routes were introduced, resulting in an increase in staff costs.
    • 67. Gross Profit Margin • The decrease of 1.07 percentage point in GP margin was largely due to significant increase in: –Electricity costs –Diesel costs –Staffs and related costs
    • 68. Gross Profit Margin • Electricity cost rose by $18.4m due to higher consumption and higher electricity prices • Diesel costs increased by 25.3% following the raise in cost of diesel • 5.3% increase in staffs and related costs mostly due to: – Increase in headcount (Circle line, increased bus service leader and train runs) – Salary adjustments and higher employer’s CPF contribution (Partially offset by jobs credits)
    • 69. Cross-sectional Analysis SBS 3.72 • Analysis: • Increase diesel and electricity price affect industry • SMRT still able to perform better than SBS • SMRT awarded new tender for the supply of diesel at discount off market prices • SMRT might have a higher job credits to offset the staff costs due to greater number of employees • Customised training programme for 85% of SBS Bus Captains SMRT 1.07
    • 70. ANALYSIS OF NET PROFIT
    • 71. Net Profit Margin Net Profit Margin = Net Profit/Sales
    • 72. Net Profit Margin • Net profit margin for 2008 was 5.66% as compared to 7.58% in 2007. • Net profit margin decreases by 1.92 percentage point due to the huge decrease in gross profit margin.
    • 73. Expenses • Repair and maintenance costs increase maybe due to the addition of new buses that needs more maintenance. • Premises costs increase maybe due to the introduction of new air-conditioned bus interchange
    • 74. Operating Expenses Breakdown in FY2009as Compared to FY2008
    • 75. Net Profit Margin • Net profit margin is decreased by 0.18 percentage point. • Mainly due to decrease in Gross Profit • Other reasons: – higher loss on disposal of taxis – more repair and maintenance for train and bus – Increase depreciation due to increased capitalisation
    • 76. Cross-sectional analysis • Analysis: • Gross profit of SBS is about half lower than SMRT • Introduction of air-conditioned bus interchange • SBS having more buses may result in higher repair and maintenance costs SBS 1.92 SMRT 0.18
    • 77. In Summary SBS SMRT Increase in Turnover 8.61% 9.58% Increase in Revenue 8.90% 10.04% Decrease in Gross Profit Margin 3.72 percentage point 1.07 percentage point Decrease in Net Profit Margin 1.92 percentage point 0.18 percentage point
    • 78. ARE THE PROFITS OF THE COMPANY ADEQUATE AND SUSTAINABLE?
    • 79. Are the profits of the company adequate and sustainable? • Oil price has dropped after August 2008 and fuel has become cheaper, allowing SBS to cope well with the fuel cost. • Economy has gradually recovered from the crisis that began in 2007. • With economic growth, there would be more advertisers and passengers. • With IR opening next year, the no. of bus trip will increase as there will be more tourists.
    • 80. Computation Fixed assets turnover 2008 2007 717,036 366,555 = 1.96 660, 207 251,487 = 2.63
    • 81. SMRT
    • 82. SMRT P&L
    • 83. SMRT BS
    • 84. Computation Fixed assets turnover 2009 2008 SMRT 878,951 1,061,540 = 0.83 802,124 1,032,780 = 0.78
    • 85. Fixed asset turnover = Sales/ Net fixed assets 2008/2009 2007/2008 717,036 366,555 = 1.96 660, 207 251,487 = 2.63 878,951 1,061,540 = 0.83 802,124 1,032,780 = 0.78
    • 86. Analysis SBS showed a decrease while SMRT showed an increase in the fixed assets turnover.
    • 87. SBS
    • 88. Breakdown in Sales
    • 89. Turnover for SBS
    • 90. SBS
    • 91. Fixed Assets
    • 92. Fixed Assets
    • 93. Fixed Assets • Increase of 45.8% (366,555-251,487/251,487) of fixed assets in FY2008. • Substantial amounts of $9,934,000, $1,265,000, $1,880,000 were spent on purchasing buses, leasing buildings and workshop, machinery tools and equipment respectively.
    • 94. Fixed Assets  Purchase of buses  Cater to the needs of the growing demand  Achieve the target of having frequency of 10 minutes or less
    • 95. Fixed Assets  New Leases  New bus park and bus depot located at Ayer Rajah Crescent and Bedok North respectively  Provide sufficient bus parking and maintenance facilities to the buses
    • 96. Fixed Assets  Workshop, machinery tools and equipment  More buses would mean that there would be more maintenance work  Regular preventive and scheduled maintenance works are needed even for new buses to ensure roadworthiness
    • 97. SMRT
    • 98. Breakdown in Revenue
    • 99. Turnover for SMRT
    • 100. SMRT
    • 101. SMRT BS
    • 102. Fixed Assets
    • 103. Analysis of FA • Increase of 2.78% ( $1,061,540-$1,032,789/ $1,031,789) • No significant increase in investing activities
    • 104. SBS SMRT Asset Turnover Ratio 1.96 0.83 Ratio • High Ratio (SBS) • Might be a more asset- efficient company • Might have better management polices and procedures • Might have a highly depreciated group of fixed assets • Low Ratio (SMRT) • Could indicate low or declining sales volume that does not warrant further investment in assets
    • 105. Why yes? • Lower FA Turnover Ratio as compared to previous year – Substantial increase in investing activities • purchasing of fixed assets • May indicate company is in the expansion phase • New assets = generate future income
    • 106. Financial Structure of SBS & SMRT
    • 107. Debt to Equity Ratio
    • 108. Total Liabilities Total Equity
    • 109. SBS
    • 110. FY2008 Debt to equity ratio = Total liabilities/ total equity = $259,214/ $257,248 = 1.0076 FY2007 Debt to equity ratio = Total liabilities/ total equity = $224,238/$235,538 = 0.952 Computation Increase = 1.0076 – 0.952 = 0.0556
    • 111. Formula Total Liabilities Total Equity A increase in the ratio from 2007 to 2008 would mean:
    • 112. ANALYSIS
    • 113. Liabilities Increase by $18,919K or 2.49% due mainly to:
    • 114. Liabilities – Analysis of trade payables Huge increase due mainly to trade payables to outside parties There was a 65.6% increase or $41,630K as compared to year 2007.
    • 115. Equity $21,710K or 9.2% increase due mainly to: Addition of profit for the year Lower due to dividends paid
    • 116. Net profit of year 2008 = $ 40,580K Net profit accounts for 15% of total equity of $257,248K Dividends paid for 2008 = $19,232K Dividends account for 6% of total equity
    • 117. SMRT
    • 118. FY 2009 Debt to equity ratio = Total liabilities / Total equity = $779,379k / $722,078k = 1.0794 FY 2008 Debt to equity ratio = Total liabilities / Total equity = $760,460k / $677,141k = 1.1230 Computation Decrease = 1.0794 – 1.1230 = 0.0436
    • 119. Formula Total Liabilities Total Equity A decrease in the ratio from 2008 to 2009 would mean:
    • 120. ANALYSIS
    • 121. Liabilities $18.9m or 2.48% increase to $779.4m, mainly due to:
    • 122. •Space to accommodate wheelchairs, •wider seats, •additional row of grab bars, •larger stand-back spaces at doorways, •line flow fans for better air circulation, •improved in-train public address announcement system, •spruced-up interior and exterior • $51.2m increase in trade and other payables – Mid-life upgrade of trains to improve service through
    • 123. $18.6m decrease in deferred grant - Amortization for the year Grant given for assets under 30 year Licence and Operating Agreement - Deferred and allocated as amortization to PL over 30 years
    • 124. Equity $44.9m or 6.64% increase to $722.1m, mainly due to: Addition of profit for the year Lower due to dividends paid
    • 125. Profit of the year = $162.7m Dividends paid - Final dividends for 2008 of $90.9m - Interim dividends for 2009 of $26.5m
    • 126. COMPARISON
    • 127. Ratio Debt to Equity Ratio SBS SMRT Change in debt to equity ratio 0.0556 -0.0436
    • 128. •Both companies employed a conservative financing strategy •Exposed to low risks of insolvency. •Optimal mix of debt and equity. •Low risk industry •Should be more aggressive •Beneficial to the company. Ratio Debt Equity Ratio SBS SMRT Debt equity ratio for FY 08/09 1.0076 1.0794
    • 129. Interest Coverage Ratio
    • 130. Earnings before interest and tax Interest expense
    • 131. SBS
    • 132. No interest expense Meaningless to compare interest coverage ratio since SBS will always have a higher interest coverage ratio Might be due to borrowings made at the parent company level (ComfortDelgro’s)
    • 133. Earnings before interest and tax Interest expense
    • 134. SMRT
    • 135. Computation • FY 2008 Interest coverage ratio = EBIT / Interest expense = ($188,759k + $7,376k) / $7,376k = 26.1870 • FY 2007 Interest coverage ratio = EBIT / Interest expense = ($176,162k - $8,028k) / $8,028k = 22.9435 • Increase = 26.1870 – 22.9435 = 3.2435
    • 136. Formula Earnings before interest and tax Interest expense An increase in the ratio from 2007 to 2008 would mean: 1.Increase in EBIT 2.Decrease in interest expense 3.Increase in EBIT > increase in interest expense 4.Decrease in EBIT < decrease in interest expense
    • 137. COMPARISON
    • 138. Ratio Interest Coverage Ratio SBS SMRT Interest coverage ratio for FY 07/08 Nil 22.9435 Interest coverage ratio for FY 08/09 Nil 26.1870 Change in Interest coverage ratio Nil 3.2435
    • 139. Summary of Financial Structure of SBS
    • 140. QUESTION AND ANSWER TIME
    • 141. INTERPRETATION OF FINANCIAL STATEMENTS (3)
    • 142. Net Working Capital Net Working Capital= Current Assets – Current Liabilities 2008 2007 134,159 – 222,204 = -88,045 186,905 – 194,942 = -8,037
    • 143. Current Ratio Current Ratio = Current Assets/ Current Liabilities 2008 2007 134,159 222,204= 0.604 186,905 194,942= 0.959
    • 144. Quick Ratio= (Current Assets – Inventory - Prepayments)/ Current Liabilities Quick Ratio
    • 145. Quick Ratio Quick Ratio= (Current Assets – Inventory - Prepayments)/ Current Liabilities 2008 2007 (134,159-26,812- 6,192)/222,204 = 0.455 (186,905-21,639- 4,688)/194,942 =0.824
    • 146. Liquidity Ratios SBS 2008 2007 Net Working Capital 134,159 – 222,204 = -88,045 186,905 – 194,942 = -8,037 Current ratio 134,159 222,204= 0.604 186,905 194,942= 0.959 Quick ratio (134,159-26,812- 6,192)/222,204 = 0.455 (186,905-21,639- 4,688)/194,942 =0.824 • Current Assets < Current Liabilities • SBS may have problems meeting its short- term obligations • Generally, the company does not have a good liquidity position
    • 147. Decrease in liquidity
    • 148. SMRT
    • 149. Liquidity Ratios of SMRT 2009 2008 Net Working Capital 392,317 – 416,265 = -23,948 355,386 – 229,903 = 125,483 Current Ratio 392,317 416,265= 0.942 355,386 229,903=1.546 Quick Ratio (392,317-30,917- 6,376)/416,265 =0.853 (355,386-31,872- 6,587)/229,903 =1.379
    • 150. Comparison • In transport industry, the liquidity ratios of less than 1 is common • Decrease due to economic downturn • Low risk industry • Cash inflow would not decrease by a significant amount SBS SMRT 2008 2007 2009 2008 Net Working Capital -88,045 -8,037 -23,948 125,483 Current Ratio 0.604 0.959 0.942 1.546 Quick Ratio 0.455 0.824 0.853 1.379
    • 151. Liquidity position • SBS’s liquidity position is slightly more risky than SMRT • SBS invested more in the purchase of fixed assets than SMRT • This reduced the amount of cash and increased liabilities in SBS
    • 152. Liquidity Position • Company does not seem to be facing any liquidity problem • Generate positive cash inflow from its operating activities • Should be able to meet its financial obligations as they fall due.
    • 153. SBS’s Cash Flow Statement
    • 154. Sustainability • Regularly reviews its liquidity position – Free cash flows from its operations – Credit lines from banks • Have secured adequate funding with the best possible rates • Net cash used in investing activities amounting $126,866 can generate future profits
    • 155. ACCOUNTS RECEIVABLE TURNOVER
    • 156. Accounts Receivable • Operates mainly on cash-basis • Majority of its commuters use the contactless smart card where cash is collected upfront • Rental and advertisement income constitute most of Trade Receivables
    • 157. Accounts Receivable Turnover SBS 2008 2007 Accounts Receivable Turnover= (Credit Sales-Discounts Allowed)/Average debtors 43,594/6,964=6.26 37,167/10,448=3.56
    • 158. Analysis • About 6 times of the accounts receivable balance is converted to cash • Extension of credit and collection policies are inefficient • Trade debtors have decreased by 33.35% • However, revenue from advertisement and rental has increased • Most revenue is on cash-basis
    • 159. SMRT’s Accounts Receivable Turnover Accounts Receivable Turnover SBS (2008) SMRT (2009) Accounts Receivable Turnover 6.26 80,075/5,492=14.58
    • 160. Average Collection Period Average Collection period (in days)=365/14.58 =25.03 Average Collection period (in days)=365/14.58 =25.03 SBS Average Collection period (in days)=365/ 6.26 =58.31 Average Collection period (in days)=365/ 6.26 =58.31 SMRT
    • 161. Why SMRT better? • SMRT has higher Accounts Receivable Turnover • More sound credit management policy •Sustainability Too relaxed The risk of uncollectible debts Excessively long collection period as compared to SMRT Customer choose SBS over SMRT Revenue from advertisement and rental may be higher
    • 162. INVENTORY TURNOVER
    • 163. Decrease in Inventory Turnover • Inventories consist mainly of parts, accessories and consumable stores required for the operation and maintenance of vehicles and certain equipment.
    • 164. Inventory Turnover 2008 2007 Inventory Turnover= (Cost of goods sold- Discounts Received)/Ending inventory 92,609/26,812=3.45 91,097/21,639=4.21
    • 165. Decrease in Inventory Turnover • Inventories increase due to addition of new buses that needs more maintenance • Possibility of excess stocks due to ineffective buying • Newly added 400 Euro IV buses may required new parts
    • 166. Comparison SBS (2008) SMRT (2009) Inventory Turnover 92,609/26,812=3.45 66,291/30,917=2.14
    • 167. Why SBS has higher inventory turnover? • SBS has more buses which require more repairs and maintenance services •Sustainability: SBS does not provide any allowance for obsolete stocks There is no evaluation of the risk of stock obsolescence in SBS However, impact is small Constitute a minor part of assets
    • 168. Stock Market Ratios
    • 169. EARNINGS PER SHARE
    • 170. Net Profit after Tax and Preference Dividend No. of Ordinary Shares issued
    • 171. Earnings Per Share
    • 172. Earnings Per Share
    • 173. Earnings Per Share 2008/2009 2007/2008 13.19 16.37 10.70 9.90
    • 174. Earnings Per Share (Cont’)
    • 175. Earning Per Shares (Cont’) • SBS shares are still more attractive • Drop in earnings is largely attributable to the hike in fuel price in 2008
    • 176. Price-Earning Ratio =Share price/ Earnings per share
    • 177. SBS 2008 2007 SBS 170/13.19 = 12.89 293/16.37 = 17.90
    • 178. SMRT 2009 2008 SMRT 153/ 10.7 = 14.30 182/9.9 =18.39
    • 179. Computation (Summary) 2009/2008 2008/2007 SBS 170/13.19 = 12.89 293/16.37 = 17.90 SMRT 153/ 10.7 = 14.30 182/9.9 =18.39
    • 180. Analysis - SBS • Decrease in share price and EPS • Decrease in P/E ratio – Generally reflects the increase of risk of investing and lower growth prospects for earnings – Suggest that investors are expecting lower earnings growth in the future • Might be due to poor economic conditions 2008 2007 SBS 170/13.19 = 12.89 293/16.37 = 17.90
    • 181. Dividend Yield = Dividend per ordinary share/ Share price
    • 182. SBS 2008 2007 SBS 6.6/170 = 0.04 9.25/336 = 0.03
    • 183. SMRT 2009 2008 SMRT 7.75/153 = 0.05 7.75/182 = 0.04 Assumption
    • 184. Computation (Summary) 2009/2008 2008/2007 SBS 6.6/170 = 0.04 9.25/336 = 0.03 SMRT 7.75/153 = 0.05 7.75/182 = 0.04
    • 185. Risk Free Investments Comparison
    • 186. Interest Rates
    • 187. Comparison • Singapore Treasury Bills Rate – 0.0034 • Singapore Fixed Deposit Interest Rates o Bank Rate – 0.0053 o Financial Companies Rate – 0.0025 2008 2007 SBS 6.6/170 = 0.04 9.25/336 = 0.03 For every $1 dollar of shares invest in SBS, there will be a return of 4cents and 3cents for 2008 and 2007 respectively. The rate of return of treasury bills and fixed deposits are much lower. Investing in SBS’s shares is therefore more profitable.
    • 188. NET ASSETS BACKING PER SHARE
    • 189. Total shareholders’ equity Number of ordinary shares
    • 190. SBS Number of shares Total Equity
    • 191. SBS • Increase of 7 cents mainly due to – Net profits for the year less dividends paid 2008 2007 SBS 257,248K/307,721K =0.8360 235,538K/307,224K =0.7667
    • 192. SMRT Number of shares Total Equity
    • 193. SMRT • Increase of 3 cents mainly due to – Net profits for the year less dividends paid 2009 2008 SMRT 722,078K/1,516,195K =0.4762 677,141K/1,515,158K =0.4469
    • 194. COMPARISON
    • 195. Net Asset Backing per Share • Total shareholders’ equity/Number of ordinary shares 2009/2008 2008/2007 SBS 0.8360 0.7667 SMRT 0.4762 0.4469 • Increase for both companies
    • 196. Analysis • SBS has a higher net asset backing • Higher liquidation value • Lower risk for investors
    • 197. Price-Book Ratio = Share Price / Net Asset Backing per Share
    • 198. SBS Share prices Total Equity
    • 199. Price-Book Ratio 2009/2008 2008/2007 SBS 1.70/0.8360 = 2.0335 2.93/0.7667 = 3.8216 SMRT 1.53/0.4762 = 3.2129 1.82/0.4469 = 4.0725
    • 200. Price-Book Ratio • What does <1 means? • Either market believes the asset value to be overstated or • Company is earning poor returns on its assets • What does >1 means? • Company is earning very high return on its assets • The market values the company highly.
    • 201. Price-Book Ratio
    • 202. Price-Book Ratio 2009/2008 2008/2007 SBS 1.70/0.8360 = 2.0335 2.93/0.7667 = 3.8216 SMRT 1.53/0.4762 = 3.2129 1.82/0.4469 = 4.0725 • Still >1 • Valued at more than its accounting value
    • 203. Factors that may affect share prices • Exercise date of dividends • Bonus issues • Rights issues • Warrant exercise • Earnings-per-share • Net asset value per ordinary share
    • 204. Conclusion • SBS has been successful in creating value for its shareholders. • But precaution has to be made by checking other ratios to ensure that SBS is not overvalued by the market.
    • 205. Is the current stock price attractive? • Current stock price hovers around $1.80 • Decrease in Earning per share • Increase in Dividend yield • Increase in net asset backing per share • Decrease in P/B ratio
    • 206. Using Gross Profit Using Net Profit SBS SMRTReturn on Equity Computed using Net income/Shareholders’ equity
    • 207. Limitations • Financial year-end for both companies are of different period (i.e. 31 Dec, 31 Mar). • Historical earnings may not reflect future earnings especially if there are large changes going on in the industry. • Size of SMRT is bigger than SBS and is more diversified. • Both the companies earn service revenue – No COGS • Market prices can move based purely on rumour and speculation.
    • 208. Assumptions • Ratios for past financial years are indicative of future trends. • Share prices as at end of accounting year are indicative of the prices for the year • Cost of goods sold includes fuel and electricity costs and staff costs only • Industry consists of only SMRT and SBS
    • 209. Conclusion
    • 210. References • http://www.singstat.gov.sg/stats/themes/econo my/ess/essa51.pdf • http://www.investopedia.com/terms/d/dividend yield.asp • http://www.anz.com/edna/dictionary.asp? action=content&content=asset_backing • http://www.investopedia.com/terms/e/eps.asp • http://www.investopedia.com/articles/fundame ntal/03/112603.asp

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