• Revenue was 15% lower than our forecast, as the adoption of SFRS(I) 15 resulted in a change in how revenue and expenses is reported
• Key changes to reporting revenue and expenses are contract services (relates to cashless payments) and taxi drivers’ benefits
• Our revenue forecast would have been an estimated 5% higher than actual, had our forecast was in accordance with SFRS(I) 15
• PATMI was 22% lower than our forecast, due to a combined effect of our aggressive revenue forecast and higher than expected opex
• Excluding one-off special dividend in 1Q17, recurring PATMI is -8.6% YoY lower
• Some positive one-offs for Bus during the quarter and Taxi outlook has improved
• Downgrade to Accumulate on the back of recent positive share price movement; lower target price of $2.48 (previously $2.50)

The Positives

• SBST’s 64% YoY higher NPAT exceeded our expectation due to Bus. Higher Bus contribution was due to quality incentives for 2017 and 2018 under the government bus contracting model and “operating shuttle services for early closure and late opening of the East-West MRT Line”.
• DTL loss narrowed QoQ off its high in 4Q17. Quarterly loss for Downtown Line (DTL) peaked at $(15.6)mn in 4Q17 and has narrowed to $(9.1)mn (Figure 1 overleaf). We had stated in our previous results report (Feb. 14) to expect the loss to narrow going forward, on the basis that the full DTL is now operating and no longer incurring start-up costs. 1Q18 DTL average daily ridership has grown 76% YoY and 16% QoQ to 431k.

The Negatives

• Comfort & CityCab taxi fleet contracted 21% YoY, contributing to 15% YoY lower Group Taxi revenue. Comfort & CityCab fleet contracted 4% QoQ to 12,687 and the idle rate for the quarter was just under 3%. Single-digit idle rate has been maintained by fleet size rationalisation.

Outlook

The outlook is mainly positive. Recent consolidation of the private-hire car industry has resulted in pricing rationalisation, in turn resulting in some flow of drivers back to Taxi. The purchase of 200 new taxis signals the worst could be over, which we discussed in our recent Land Transport sector report (May 9). For the Public Transport Services segment, the narrowing of DTL losses to continue and contribution from the Seletar bus package will contribute positively in 2018. Recent acquisitions announced are expected be completed by 2Q18 and contribute positively from 3Q18. Negative impact from the transition of North East Line (NEL) and Sengkang LRT and Punggol LRT (SPLRT) to the new rail financing framework (NRFF) since April 1, is margin will being capped at ~5% from previous estimated mid- to high- teens.