Saturday, November 23, 2013

SMRT - Too Big to Fail. Too Big to Prosper?

SMRT is integral to the lives of many Singaporeans. Without the public train and bus services, Singapore will literally cease to function. As a result, the public's general perception is that SMRT is a company that service the masses (low-middle income families). It is simply too big to fail. It even has Temasek Holdings as its major shareholder. At first glance, SMRT should be a solid blue-chip with strong fundamentals. Unfortunately, in my opinion, that is far from the truth.

I can imagine the following scenario playing out in an informal coffeeshop or hawker centre chit chat session.

Teochew porridge uncle, "Hi DW! Here for some porridge again?"

DW, "Yup. I am a Teochew after all. Please give me extra pork liver in my porridge. Thanks uncle!"

After 5 minutes......

Teochew porridge uncle, "Here you go. Enjoy! By the way, I just read from the papers that SMRT is not making huge profits. In fact, their profits are dropping fast. Made me really happy!"

DW, "Why did that make you happy?"

Teochew porridge uncle, "Because SMRT's aim should NOT be about making profits! They should focus on providing quality service to the commuters. In the past, during Mdm Saw Phaik Hwa's era, SMRT reported handsome profits and cash flow. Transport fares kept rising too. It really made my blood boil! Greedy management!"

DW, "Ok. OK. Calm down uncle. But other government-linked companies such as Singtel, Starhub and DBS are equally, if not more important to the survival of Singapore. Does your blood boil when you see Singtel, Starhub and DBS making profits and rewarding their shareholders too? "

Teochew porridge uncle, "Actually, I am ok with the telcos and banks making profits and prospering."

DW, "Ok........errrrrrmm. No disrespect, but dun you think you are being biased here?"

Teochew porridge uncle, "Dun get me wrong. I am not saying I want SMRT to go bust and collapse. I just want SMRT to function efficiently without making huge profits."

DW, "So, you are saying that SMRT should just earn enough to maintain its fleet of trains and buses, pay the staff, pay the electricity/fuel bills and distribute a little dividends?"

Teochew porridge uncle, "Yes. And they should not even distribute any dividends! No fat bonuses for the management too!"

DW, "Ok......Well, thanks for the porridge. Hey, is that your iPad?"

Teochew porridge uncle, "Yes. My wife and I used it to watch our favourite Taiwanese, Hong Kong and Korean drama serials when there is no customers around. My son helped me set everything up. All I need to do is to press a few buttons. Without the teletext service now, old people like myself have to learn how to surf the net too. My grandchildren have iPads too. I can do video chats with them. I could not believe I exceeded the data usage limit recently, I think I have to upgrade my basic data plan."

DW, "Wow! Even your grandchildren have iPads. You dun mind paying more for a higher-tiered data plan? Why dun you cut down on your drama serials? Can save money."

Teochew porridge uncle, "I dun mind paying more. My wife and I love our drama serials. ^^"

DW, "Alright then. See you again uncle. Bye!"

SMRT is too big and important to be allowed to prosper without incurring the wrath of the public. In fact, the title of the recently-released report from the Fare Review Committee says it all. "Affordable Fares. Sustainable Public Transport". I can't help but notice the succinct use of the word "Sustainable". That word is as commonly-used as "Productivity" nowadays. So, for those readers who have been asking me whether they should invest in SMRT. My question to you will be "Do you want to invest in a company that is merely sustainable?"

Is Sustainable Good Enough?
Dividend Warrior


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