SMRT

[Ben]

Hi ForeverAlone,
My only concern is our general in SMRT (unlike his predecessor) will not be so keen in pushing for highest profitability for shareholder.

Instead, likely he will choose to spend more and bleed the organisation.

I guess that's where the balance is.

LHS: GOV take up more cost
RHS: CEO spend more money

Hi Chialc, I am pretty sure that profits will not be the number 1 priority for SMRT's CEO, be it the current one or any future ones, after what has happened to SMRT in recent years. The current CEO has openly said that he needs to balance the returns SHs want VS the needs of the public, among other things. What is important is for SMRT to achieve a certain level of profit each years + small gradual improvement y-o-y. What I am looking for in SMRT is stable and predictable earnings, not boom-and-bust kind of business. Just like taking a train, when I want is the certainty of arriving at my destination at a predictable time, not one day faster and next day slower due to breakdown or strikes

And when you say that the CEO is spending more money and bleeding the organisation, can you give some examples? Some expenses are really necessary, like R&M. So such expenses can not be deemed as bleeding the organisation as it is for the long term good of the company and the public. Thanks.

[valueinvestor]

My only concern is our general in SMRT (unlike his predecessor) will not be so keen in pushing for highest profitability for shareholder.

Instead, likely he will choose to spend more and bleed the organisation.

I guess that's where the balance is.

LHS: GOV take up more cost
RHS: CEO spend more money

I share the same concern.

The general's first priority is to improve service levels, reliability and commuters' satisfaction. I dun think he is chasing after profits as aggressively as Mdm Saw. He also need to take care of smrt staff too. The staff cost has increased significantly.

What can you expect from a mentality of an army ? Military mentality dont think of profit, their budgt is more biased towards spending than earning.

[ForeverAlone]

time to load up on SMRT and CD before BB comes in!

[chialc]

Hi Ben,
I use the term Bleeding in general sense aka money will be spend more aggressively.

Exactly how it's to be spend, at this time I had yet look into SMRT expenses but you can guess as good as mine.

Hi DW,
not just the General mentality but also the "cost-minus" model will encourage him to spend more.

A short/medium term overspend is very likely and of course, we all hope that it's for the good of long term substainability.

Because, if SMRT is not financially viable, then GOV will introduce new player to bridge the gap.

[CityFarmer]

Hi Ben,
I use the term Bleeding in general sense aka money will be spend more aggressively.

Exactly how it's to be spend, at this time I had yet look into SMRT expenses but you can guess as good as mine.

Hi DW,
not just the General mentality but also the "cost-minus" model will encourage him to spend more.

A short/medium term overspend is very likely and of course, we all hope that it's for the good of long term substainability.

Because, if SMRT is not financially viable, then GOV will introduce new player to bridge the gap.

Indeed, the newly on-board CEO and previous interim CEO were spending aggressively in impairments. I reckon it is part of the "New CEO symptom"

Impairment:
2012 : S$21.7 mil (goodwill on bus operations)
2013 : S$17.3 mil (interest in associate)

Ref: SMRT AR 2013, page 72

[ForeverAlone]

volume coming on CD
BB might wanna push SMRT next

[Clement]

Hi Ben,
I use the term Bleeding in general sense aka money will be spend more aggressively.

Exactly how it's to be spend, at this time I had yet look into SMRT expenses but you can guess as good as mine.

Hi DW,
not just the General mentality but also the "cost-minus" model will encourage him to spend more.

A short/medium term overspend is very likely and of course, we all hope that it's for the good of long term substainability.

Because, if SMRT is not financially viable, then GOV will introduce new player to bridge the gap.

Hi Chialc,

I don't see how the cost minus model encourages any spending. The costs are indexed to indices and not SMRT's specific costs and the productivity extraction cannot be negative (SMRT will not be able to pass costs arising from reduced productivity to the commuters.)

I agree with you on the long term sustainability issue. The public has decided that affordable public transport is desirable. Therefore, if the service is uneconomical, the government will be funding the gap as in the proposed cost plus model for SMRT bus services.

[GPD]

Hi Ben,
I use the term Bleeding in general sense aka money will be spend more aggressively.

Exactly how it's to be spend, at this time I had yet look into SMRT expenses but you can guess as good as mine.

Hi DW,
not just the General mentality but also the "cost-minus" model will encourage him to spend more.

A short/medium term overspend is very likely and of course, we all hope that it's for the good of long term substainability.

Because, if SMRT is not financially viable, then GOV will introduce new player to bridge the gap.

All these concessions that GOV is subsidizing, do they account for under revenue in term of GOV compensating SMRT (or PTOs) for making them providing these concessions or GOV sharing PTO's cost?

In the end it is still the price-cap model so upside is still limited and I agree that profitability or the level of is not at the top of the CEO agenda and may not be at all given the major SH is TMS. Also this is a fare review, so it mainly if not solely dealt with SMRT's topline. SMRT still need to sort out their operation, maintenance issues. Even though they are going to review fare annually and are considering fuel prices, because it is still based on price-cap, I am on the conservative side.

Also with more new lines coming, wouldn't it dilute their demand (revenue) if they are not the operator and if they are, unless the new demand matches the new supply, the new assets may well results in cost greater than the revenue generated.

Lastly, with technology, will SG one day have more people having flexible work places or people shopping from home and reduce the need to travel? A bit far into the future but technology can change human behaviors in span of years.

[Temperament]

Any company or statutory board related to Tamasek or GOV in Singapore must make money. NTUC, HDB, LTA, the whole lots of GOV's related companies and statutory boards must make money or must not lose money. Why SMRT is so different neh?

[specuvestor]

SMRT is hardly a social enterprise.

U & I should get a consistent service that gets us from point A to point B at a reasonable price.

Ex-CEO Ms Saw has done a great job by introducing non-transport related income to supplement the cost increases and also increase its profitability, bringing the SMRT share price from about $0.60 to about $2 during her leadership. Her shortcoming is the repair & maintenance team.

The current CEO is using money to do the repair & maintenance & staffing. Looking at the recent quarterly result, the chance of a fare hike is high.

IMHO by your logic Goh did a good job with his asset inflation policy especially on the sale of shophouses and hawker centres, and later the power stations. His shortcoming is our CPI become structurally inflated

Reasonable price is an oxymoron in an industry structure with little competition and a daily necessity. Profit maximisation makes more sense which is what the ex-CEO did but that doesn't serve the national interest. Public goods and profit maximisation are inherently incompatible. That's why our tax money comes in (indirect response to Temperament)

Communist countries did it, by making the whole country as social enterprise. We all know the consequences.

Actually Singapore has shown that social enterprises like NTUC and HDB can be done very well

Problem with communism is their utopian belief hence faulty assumption about human behavior and incentive system.

NTUC and HDB have been doing well, as private enterprises in disguise as social enterprises.

There was one public critic on HDB been too profit oriented, right? IIRC, you are one of them advocating that here.

I fail to understand how they are actually private enterprises. To say they are social enterprises with a private enterprise structure would be more acceptable

IIRC HDB had not been making "profit" prior to the restructuring hence been receiving ~S$300m-600m (?) payout annually so not sure what you are saying there. My constant gripe is that it was an accounting facade and they were actually cashflow positive by revaluing their flats at mkt price and then take a "loss" when selling at below market.

Accounting aside, HDB and NTUC has excercised their social mandate pretty well, though they had been subsidised by the govt. Though I am highly skeptical that they can compete beyond the shores of Singapore due to the direct and indirect subsidies and advantages, credit where credits due.