SMRT reports 23% drop in profit on maintenance costs

An SMRT train arrives at a station in Singapore, on July 19, 2016.
An SMRT train arrives at a station in Singapore, on July 19, 2016. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - SMRT, Singapore's biggest subway operator, posted a 23 per cent decline in first-quarter profit as the company spent more on repairs and maintenance of ageing systems and trains undergoing overhauls.

Net income fell to S$15.5 million in the three months ended June, from S$20.1 million a year earlier, SMRT said in a statement to the Singapore stock exchange Monday. Revenue fell 2 percent to S$313.9 million.

The rail operator is in the midst of carrying out a transfer of rail assets to the city's regulator and a buyout by Singapore state investment firm Temasek Holdings. Shareholders will vote Sept. 29 on the asset-transfer plan after multiple service disruptions since late-2011 evoked public criticism in a country famous for its public infrastructure, and subsequently decide whether to accept Temasek's S$1.2 billion offer to take SMRT private.

"The proposed scheme will allow SMRT to better fulfill its role as a public transport operator without the pressure of short-term market expectations," Group Chief Executive Officer Desmond Kuek said in the statement. "It also provides the opportunity for minority shareholders to monetize their holdings."

The stock, which has climbed 10 percent this year, was unchanged on Monday at S$1.63.

Operating loss from the rail business was S$9.4 million in the three-month period, widening from a loss of S$5.3 million a year earlier. SMRT's taxi operations posted an operating profit of S$4.5 million, down 18 per cent, while that from bus services fell 86 per cent to S$0.2 million. Net gearing was 67 per cent end-June versus 64 percent a year ago, according to the statement.

The service disruptions dented the rail operator's reputation and led the Singapore government to tighten rules on maintenance and supervision.

Singapore's Transport Minister Khaw Boon Wan appointed an engineering specialist in October last year to advise on transforming railway operations. As part of the revamp, rail operators were to focus on service instead of also having to build up, replace and operate assets, leading to the proposed asset transfers to the regulator.

SMRT currently operates three metro rail lines in Singapore and SBS Transit Ltd.runs two. Singapore is building a sixth subway line, which will start operations in 2019, as part of its plan to double the country's rail links in the next decade.

The rail overhaul follows a similar revamp to the city- state's public bus system in 2014. The government said at the time that it would take ownership of bus infrastructure such as depots, and vehicle operators would then bid for the right to run services.

Temasek currently owns 54 per cent of SMRT. The investment firm, which last month reported the first drop in the value of its stakes in seven years, has trimmed exposure to traditional banks and also embarked on a record pace of divestitures as part of a portfolio overhaul.