The Public Transport Council uses a fairly vague financial ratio to decide not to grant the Singapore MRT an increase in fares. So we decided to do a comparison of a variety of other ratios to see whether this yardstick stands up to scrutiny. Our conclusion is that ROTA is not only not useful. It is unfair to punish SMRT for being an efficient, profitable company.

The PTC said in granting SBS, but not SMRT, the right to increase fares by up to two cents it used the Return On Tangible Assets (ROTA) as a "reality check". This measures how much money the company makes based on the value of its trains, equipment and other sellable, tangible assets. According to Reuters data, SMRT has a ROTA of 11% while MTR Corp's is 6.7%. In terms of gross profit margin, last financial year MTR Corp's was a hefty 81.1%, but outpaced by SMRT's 89.8%. At best, all this means is that SMRT is better managed, not that it is gouging consumers.

On a cashflow basis – always our preferred yardstick – MTR is actually performing significantly better than SMRT: S$0.37 compared to SMRT's S$0.18. But even so, this depends on the number of shares on issue.

Let's check out some other ratios, based on Reuters data and a HKD-SGD exchange rate of 5.148:

Revenue growth (last financial year)
MTR Corp: 4.24%
SMRT: 4.41%

Revenue per share
MTR Corp: S$0.34
SMRT: S$0.51

Net earnings per share (a fairly useless but commonly-accepted accounting standard, but let's use it anyway for now):
MTR Corp: S$0.27
SMRT: S$0.09

Dividend per share (last financial year)
MTR Corp: S$0.08
SMRT: S$0.07

Book value per share
MTR Corp: S$2.70
SMRT: S$0.42

Total revenue per employee (last financial year)
MTR Corp: S$282,454
SMRT: S$132,938

We could go on and pick probably a dozen other ratios, but what does this list tell us?

In short, pretty much nothing.

The reason is that while SMRT and MTR Corp are both light rail operators in city states, that's just about where the similarity ends. MTR Corp is a S$24.8 bln company, almost ten times the size of the SMRT's market capitalisation of S$2.6 bln.

Further, MTR Corp has many more people to serve than Singapore, based on population size alone.

In my view, the much better yardstick would be to look at the inflation rate, to see how much of an impact the fare increase has on the average consumer. Is the fare increase going to hurt people's hip pockets? That should be the ultimate question, not whether a company is so well run that it is efficient and profitable.

Two cents is pittance, really, but the principle counts. They are robbing Peter to pay Paul, by penalising shareholders to appease commuters. If you take this attitude, it would be better for the SMRT to be less-well run. With a lower ROTA, it would be granted fare increases more readily.

Or take SMRT private and run it as a public service, not as a publicly listed company. Ultimately, publicly listed companies have their shareholders to answer to, not their customers.

Mark Laudi

Labels: fare hike, MTR Corp, Public Transport Council, SBS, smrt