• FY21 revenue and PATMI was 103%/75% respectively of our forecast. Excluding the one-offs, FY21 earnings were around 10% below expectations. The one-offs are an estimated S$27mn (disposal loss of buses, impairment and IPO expenses).
• Taxi rental rebates in FY21 were S$87mn. We expect rebates to decline to S$15mn-20mn in FY22e.
• In the past two years of the pandemic, the company has generated S$905mn in FCF. We expect FY22e to be an even stronger year of recovery. Reduction in taxi rebates, normalisation of social and work activities, re-opening of borders and lower depreciation will be key drivers to earnings. Our FY22e PATMI is lowered by 10% to S$231mn as we assume higher electricity and staff costs. FY22e revenue is relatively unchanged. Our DCF target price (WACC 8%) of S$1.80 is unchanged.

The Positive

+ Operating leverage intact. Despite a sluggish rebound in revenue of 3% YoY to S$915mn, operating leverage drove normalized PATMI to surge 10x to S$31.8mn. Contributing to the improvement in 4Q21 earnings was an S$18mn YoY decline in depreciation. The drop in CAPEX for the past two years will keep depreciation low.  

The Negative

– Sluggish taxi revenue. Taxi revenues were weaker than expected due to the continuation of rental rebates of around 25% in 4Q21. The rebates continued into 1Q22 at an estimated 15% rate. Higher taxi fares will help improve driver takings but an offset will be the jump in fuel costs.

Outlook

The challenge in FY22e will be higher fuel and electricity costs. Bus operations will be able to pass through the increased fuel costs due to fuel indexation. Taxi drivers will bear the brunt of higher fuel but improving economic activity and higher fares will soften the impact. Rail will bear the higher electricity cost as the ability to pass on the cost from higher rates is limited. Improvement in passenger traffic will be critical. Rebound in ridership was moderate in 2021, up only 5% to 744k/day (2019: 1.21mn/day). Earnings from Australia are expected to be stable due to the contractual nature of the bus services.