Backed by the expertise and experience of SMRT Corporation, our subsidiaries - SMRT International Pte Ltd and SMRT Engineering Pte Ltd - offer operations and maintenance (O&M), engineering, consultancy and project management services to rail and road transport owners around the world. Our range of solutions includes in-house proprietary products, such as automatic faregates and on-board information system displays.
SMRT International Pte Ltd
For any city to grow and prosper, an effective and reliable public transport network is essential. SMRT International Pte Ltd, a wholly-owned subsidiary of SMRT Corporation, was established to spearhead SMRT's expansion of overseas business operations. Drawing on our wealth of experience, we share our expertise with overseas transport operators, serving clients in various parts of the world, including India, China, Taiwan, the Middle East, the Philippines, Vietnam, and Thailand.
SMRT Engineering Pte Ltd
As SMRT's business development arm, SMRT Engineering Pte Ltd delivers engineering solutions for the global rail industry. We are also licensed by the Infocomm Development Authority of Singapore (IDA) to provide public telecommunications services, including the leasing of fibre optics cable. Our fibre optics business has grown exponentially in line with the Singapore government's efforts to develop the nation as an international infocommunications hub.
SMRT Institute
About SMRT Institute
A subsidiary of SMRT Corporation, SMRT Institute draws on 25 years ofexperience and expertise as a world-class multi-modal public transport operator, to provide robust training and accredited educational courses and programmes that are specifically designed to meet the current and future learning needs of the land transportation sector.
SMRT Institute formalised its collaboration with the Institute of Technical Education, and with this collaboration, created the industry's first-ever National ITE Certificate in Rapid Transit Technology.
Click here to download SMRT Institute's brochure
Nitec in Rapid Transit Technology
Be at the forefront of Rapid Transit Technology and work within the mass rapid transit system that serves more than 2 million commuters daily!
Jointly developed by SMRT Institute and the Institute of Technical Education (ITE), Nitec in Rapid Transit Technology provides you with a robust foundation in railway engineering. You willlearn the fundamental skills and knowledge in areas such as Rapid Transit Systems and Operations, Automation and Control Systems, as well as Electronics Systems and Equipment. This course is the first certified training programme of its kind in Singapore, as well as Southeast Asia, that is jointly developed by a public transport service provider (SMRT) and educational institution (ITE).
Enrol in the course to embark on an exciting career in the dynamic transport industry!
Course Synopsis
On completion of the course, students would be able to:
Perform basic inspection of railway subsystems and facilities
Maintain railway electrical and electronics equipment and systems
Maintain railway mechanical and pneumatic equipment and systems
Maintain high voltage and traction power equipment
Maintain rolling stock systems and equipment
Maintain permanent way and tracks
Job Opportunities
Nitec in Rapid Transit Technology graduates can consider a career with mass rapid transit operators, government transport planning agencies, as well as companies in the rail equipment industry. Some of the positions graduates hold include include Rapid Transit Technical Officer, Trains and Rolling Stock Technician and Permanent Way Field Services Technician.
For more details:
Visit ITE College West between 8.30am and 5.00pm (Monday to Friday)
Call ITE at 1800 225 3482
Singapore's public transport market functions in a duopoly market framework. Two huge organizations control the market. SMRT and SBS function on different routes, thereby getting monopolistic power over that path for the contract period. Currently, SMRT is managing the East-West MRT line, North-South MRT line and SBS is managing the North-East line. They basically act like a monopoly over their various tracks.
1. COMPANY BACKGROUND
SMRT Corporation Ltd ("SMRT") is incorporated on 6 March 2000 and listed on the Singapore Exchange since 26 July 2000. It is the second largest multi-modal public transport service provider in Singapore, offering a range of integrated transport services, as well as the leasing of commercial and advertising spaces, engineering consultancy and project management services.
SMRT operates two out of the three MRT lines in Singapore (81.7% of the whole network) as well as the Bukit Panjang LRT system (27.1% of the rail length). The company's bus and taxi operations form a marginal part of the transport systems at an estimate of 26.5% and 12.3% respectively, based on fleet size.
In October 2008, public transport fare was increased by a net 0.7%. Transfer rebates were increased by 10 cents while all adult and senior citizen fares were increased by 4.0 cents per ride. However, with the recent shrinking of the Singapore economy, SMRT decided to roll out a fare reduction package from April 2009. The package will include a 4.6% reduction in bus and train fares and higher transfer rebates.
2. ANALYSIS OF INDUSTRY
2.1 Intensity of Rivalry among existing Competitors
The public transport industry in Singapore is a duopoly industry, with SBS Transit being the only competitor in SMRT's core operations, which is MRT and buses. Even so, SMRT's operations are more focused on the MRT segment (53.96% of total revenue) while the major operating segment of SBS is in the bus industry (79.77% of total turnover). Therefore, there is very little competition between SMRT and SBS. Consumers are also not able to switch from one competitor to another as the train and bus network of SMRT and SBS cover different geographical areas of Singapore. In addition, there is no price war among the rivals because fare prices for buses and trains are being regulated by the Public Transport Council ("PTC").
2.2 Threat of New Entrants
The threat of new entrants in the bus and train industry is very low. This is largely due to the barriers to entry present in the two industries. A potential entrant will have to consider the huge start-up capital required for the purchase of fixed assets such as MRT trains and fleets of buses. Furthermore, licenses approved by the Land Transport Authority (LTA) must be obtained to operate a transport system in Singapore.
2.3 Bargaining Power of Consumers
The bargaining power of consumers is very weak as the industry is dominated by only two public transport operators - SMRT and SBS. Consumers do not have a say in the pricing of the bus or train fares. Instead, fare prices are being regulated by PTC in accordance to a
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formula. Fare prices adjustment will be affected by the Consumer Price Index and the change in Average Monthly Earnings, subjected to the approval of PTC. Moreover, public transport is a necessity. Consumers cannot avoid taking public transport even if there is a hike in the fare prices.
3. ANALYSIS OF ECONOMY
According to government statistics, Singapore economy grew by 1.1% with an inflation rate of around 6.5% and unemployment rate of 3.1%. The total population has been constantly increasing due to higher birth rates and the influx of foreign employees. As the economy is expected to improve in 2010, coupled with the further growth in population, SMRT will benefit from increased ridership and taxi demand.
In addition, major events such as the hosting of the annual F1 Grand Prix in Singapore will attract commuters to travel using public transport to prevent traffic congestion. The opening of the Integrated Resorts is also likely to attract more tourists and foreign employees, resulting in an overall improvement in ridership trend.
Furthermore, the rising prices of the Certificate of Entitlement (COE) premiums and Electronic Road Pricing (ERP) charges has led to a fall in the purchase of private vehicles, making public transport more economically attractive in comparison.
The Singapore government has also introduced a temporary Jobs Credit (JC) Scheme in its Singapore Budget 2009 which encourages businesses to preserve jobs in the economic downturn. Corporate tax rate will also be reduced from 18% to 17% for the Year of Assessment 2010. Additionally, SMRT will stand to gain from the Land Transport Authority (LTA)'s Land Transport Master Plan, which is the government's effort to develop Singapore's public transport to make it a choice mode of transportation.
4. QUALITATIVE ANALYSIS OF COMPANY
4.1 Nature of Services Provided
Transport services provided by SMRT are highly diversified with its buses, taxis, MRT and LRT trains covering every mode of public transport. The other business segments are rental, advertising and the provision of engineering and other services, etc. The company also expanded their services by launching 9 premium bus services that offer commuters a faster and more direct ride to their destination.
Having established a global reputation as an excellent transport service provider, SMRT has diversified its businesses into other regions. A recent example would be SMRT securing a 10-years media contract with the new Dubai Metro, which is set to be one of the world's most advanced urban rail system. Moreover, SMRT clinched a six-year contract for the Operations and Maintenance with Palm Jumeirah Monorail.
4.2 Quality of Management
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The management of SMRT is farsighted as it diversifies its overseas operations in order to expand beyond the small domestic market. Meanwhile, it keeps its local business competitive, by providing better services through the upgrading of its MRT, buses and taxis. The launch of its premium bus services is also a continuing effort of the management to meet the growing demand for this niche market segment.
Recently, SMRT offered a rewards campaign for 4 big winners to win 3 years of free ride on buses and MRT, and over 140 people to win attractive prizes over seven
4.3 Earnings Quality
• Choice of accounting policies and estimates
SMRT uses the straight line method to depreciate its assets in equal instalments over their estimated useful lives ranging from 3 to 30 years. However, it is stated in the annual report that there may be a need to revise future depreciation charges as the assets are subjected highly to technological changes which may affect their economic useful lives. This shows prudence in its accounting policies and it is evident that monthly draws starting December 2009. This campaign signifies the company's strategy in encouraging people to switch to public transport.there is no intention of overstating profits by lowering depreciation expenses.
• Discretionary expenses
Management can manipulate earnings by increasing or lowering discretionary expenses. An example is the Repairs and Maintenance (R&M) costs, which is discretionary to a certain extent as it needs to abide to the Lease and Maintenance Agreement. Inadequate provision for R&M costs may cause SMRT's trains or buses to breakdown, affecting its reputation and future earnings. The amount of R&M costs incurred is on an increasing trend. In FY09, it is 6.24% of the net PPE and for FY08 and FY07, it is 6.12% and 5.78% respectively. This shows that there is adequate R&M costs to maintain its earnings quality.
SMRT also has an attractive dividend policy, which promises to maintain or increase the dividend payout each year with a minimum payout ratio of 60% of its Profit After Tax and Minority Interest. This signifies that SMRT has strong operating cash flows and the ability to generate consistent earnings.
• Timing of revenue and expenditure
Recognition of revenue is when services are rendered fully to commuters - at the end of the trips or upon the completion of short-term workshop and other services. For work and project contracts, the percentage of completion method is being employed. This shows that SMRT exercises conservatism in the recognition of revenue. There appears to be no sign of income shifting, which indicates a good quality of earnings.
• Effect of cyclical and economic forces
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The degree of volatility of a company's earnings is affected by how cyclical the industry is. With the main operations of SMRT in the transport industry, which has a defensive nature, its income is generally stable and the quality of earnings is high.
5. QUANTITATIVE ANALYSIS OF COMPANY
5.1 Liquidity Ratios
Liquidity ratios depict the company's availability of cash to pay short term liabilities. Current ratio declined from 1.59 in FY07 to 0.94 in FY09. The quick ratio also dropped from
1.36 in FY07 to 0.85 in FY09 over the years.
A main reason for the decline in current and quick ratios is that the payment for S$50 million 5-year unsecured floating rate notes and S$100 million 3- year float unsecured fixed rate notes are due in 2010 and 2009 respectively. This increases the current liabilities of SMRT and raised the base of the liquidity ratios, causing the ratios to decline. This may make SMRT appears to be less liquid. However, it may not be a weakness if SMRT has the ability to repay the loan.
Cash ratio has deteriorated from 0.96 in FY07 to 0.59 in FY09. This is despite the increase in cash & cash equivalents (cash at banks and in hand + fixed deposits) by $75.97 million from 12.3% of the total assets in FY07 to 16.36% in FY09. This is because the transfer of $150 million from non-current liabilities to current liabilities is larger than the increase in cash, causing the cash ratio to decline.
Cash-flow liquidity ratio also fell by 0.74 point from FY07 to FY09 due to the abovementioned reason. However, cashflows from operating activities did increase by $15m from $148m in FY08 to $163m in FY09. The strong operating cash flows in FY09 is because of higher profits and more cash being received from trade and other receivables ("AR"). This increase is being offset by the higher dividends and income tax paid.
5.2 Activity Ratios
Activity ratios indicate the effectiveness of the firms' use of resources. Average Collection Period ("ACP") has increased from 23.82 days in FY07 to 29.71 days in FY09. This is much higher than SBS' ACP of 3.86 days. It means that more cash are tied up in the AR with an increase of 1.25% points for AR relative to total revenue from FY07 to FY09. It will result in opportunity costs as the cash could be used for investment purposes to generate returns. Risk of bad debts also went up significantly with the increase in AR.
Average Payment Period has escalated from 70.34 days in FY07 to 92.42 days in FY09, higher than 86.67 days for SBS. This may signal that SMRT has strengthened its ability to obtain supplier credit. It may be advantageous as supplier credit is deemed as a free source of financing.
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Fixed asset turnover also rises from 0.71x in FY07 to 0.83x in FY09 due to the improvement in its total revenue. This shows that SMRT is more efficient in its management of fixed assets. However, in comparison with SBS's fixed asset turnover of 1.99x, SMRT appears much less efficient than SBS. SBS's PPE is significantly lower while their revenue generated is comparable. This is because costs of buses and the planning of bus routes are relatively cheaper than the costs of MRT trains and the construction of railway. As a result of the rising revenue, the total asset turnover of SMRT also improved from 0.54x in FY07 to 0.59x in FY09.
Cashflows from investing activities are negative throughout the 3 years, they further decline by $36m from a negative $115m in FY07 to negative $151m in FY09. This is mainly due to a huge expenditure on PPE for the construction of the Circle Line.
5.3 Leverage Ratios
Debt ratio, debt to equity ratio and long-term debt to total capitalisation ratio all decreased from FY07 to FY09, implying a slightly less risky capital structure.
Debt ratio improved from 53.58% to 51.91% throughout the three years. One of the main reasons is that SMRT has much more fixed deposits with banks and financial institutions from $132m in FY07 to S$224m in FY09. Thus, the total assets of SMRT rose significantly.
The large drop in Long-term debt to total capitalization ratio from 28.08% to 12.16% is mainly due to shifting of the $150m notes (as mentioned previously) from non-current liabilities to current liabilities. This should be contrasted with SBS' ratio of 0%, with the absence of any long term debt. The reason might be due to the fact that SBS has a huge amount of accumulated profits to fund any capital expenditure.
Debt to equity has also improved marginally from 1.15x in FY07 to 1.08x in FY09. The rise in accumulated profits plays a big role as it results in the increase of total equity being higher than the increase in total liabilities.
SMRT's ability to service interest expense is better as Times Interest Earned increased significantly from 14.63x in FY07 to 25.58x in FY09. The improvement is mainly due to higher operating profit from $145m in FY07 to S$188m in FY09. In FY09, the ratio of 25.58x is a positive result as it means that every $1 of its interest expense is covered by $25.58 of its earnings.
Cashflows from financing activities decrease from $1.8m in FY08 to $0.3m in FY09 because there is lesser cash inflow with fewer shares being issued under the share option plan in FY09 as compared to FY08.
5.4 Profitability Ratios
There was an increase in revenue by 9.6% from $878m in FY08 to $802m in FY09 and 7.9% from FY07 to FY08. The segment report shows that SMRT derives its revenue from two
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major sources, its MRT operations (53.96%) as well as its bus operations (23.58%). The MRT and LRT operations showed an increase of 8.6% and 7.1% respectively in its revenue due to higher ridership growth despite the higher staff costs and energy consumption for the new Circle Line. SMRT used the JC Scheme to manage the increased staff costs. Thus, it was able to earn an operating profit of $133.8m for its MRT operations and minimise its LRT operating losses at $0.2m.
The bus sector also revealed an increase in its revenue of 5.8%, resulting from an increase in 4.1% of its ridership. However, due to the higher diesel cost in the year, the bus sector suffered an operating loss of $4.5m compared to its previous year operating profit of $1.5m.Meanwhile, taxi operations suffered a fall of 4.9% in revenue at $71.1m due to lower average hired out fleet. SMRT incurred an operating loss of $6.3m compared to an operating profit of $0.6m in the FY2008.
Depreciation expenses increased 4.0% at $110.4m compared to the prior year of $106.1m mainly due to increased capitalisation following the mid-life upgrade of trains. More repair and maintenance were also done for trains and buses, leading to a rise of 3.1% in its cost. However, both the depreciation expenses and R&M costs relative to revenue decreased by 3.09% points and 0.6% points from FY07 to FY09. This relative decrease can be attributed to the comparatively higher increase in revenue for each year. Thus, the operating margin improves from 16.53% in FY07 to 21.47% in FY09, signalling its ability to control costs while generating higher revenue.
Net profit margin showed a small increment from 18.27% in FY07 to 18.51% in FY09. The slight improvement is due to the flow-through effect of better operating profit margin, as well as lower finance cost due to lower interest rates. In addition, a 1% reduction in corporate tax rate has resulted in the tax expenses to be lower at $23.0m.
Meanwhile, the Return on Equity increase from 21.21% in FY07 to 23.42% in FY08 and decrease slightly to 22.54% in FY09. The slight decline is due to the much lower leverage and small decrease in net profit margin, which offsets the higher asset turnover. SMRT appears to have lower debt financing and is more efficient in the managing of total assets.
5.5
Interim Update of Profit Performance
There is an increase in revenue from $878m to $890m due to the higher ridership from the operation of Circle Line stage 3 and future revenue is expected to increase further due to higher rental from the opening of 3 Xchanges at Jurong East, Orchard and Esplanade. However, it will be offset by higher staff costs and other operating costs from increased train operations. These costs counterbalance the drop in diesel prices. Finance costs will also increase because of the notes (worth $150 million) issued in October 2009. Overall, profits will most likely be maintained even though it is subjected to the volatility of the diesel prices and the fare reduction package.
6.
SWOT ANALYSIS
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6.1 Strengths
•
Major player of Singapore's public transport industry.
•
Duopoly industry with little competition.
•
Low threat of new entrants because of the barriers of entry.
•
Operates in a defensive industry which will not be badly affected during economic downturns as transportation is a basic need for the majority.
•
Diversification of business with different modes of transport (i.e. MRT, LRT, buses and taxis) and other operating segments include rental, advertising, provision of engineering and other services.
•
Stable income and high quality of earnings.
•
Generated healthy cash flows from operations.
•
The introduction of 67 Southeast Asia's first Euro V buses (environmentally friendly buses) and launching of 9 premium bus services can enhance their competitiveness.
• Opening of Circle Line stage 1 and 2 by mid-2010 will boost ridership and revenue.
•
Refurbishing of Xchanges at Orchard, Esplanade and Jurong East stations will yield higher rental revenue.
6.2 Weaknesses
• Need to incur high maintenance cost in maintaining and repairing their existing trains, buses and other infrastructures as stipulated in the Lease and Maintenance agreement.
•
Huge capital outlay on trains, buses and taxis.
•
No controls over the fares as fares are regulated by PTC.
•
Face fines imposed by PTC for non-compliance of stringent Quality of Services standards.
6.3 Opportunities
•
Clinched Dubai Metro's 10 year media contract under consortium which will be one of the world's most advanced urban rail system and awarded 6 years contract to operate and maintain the Palm Jumeirah Monorail system.
•
Ability to capitalise on their strong brand name to embark on overseas projects in countries such as Asia and Middle East.
•
Benefit from the future growth of Singapore's land transport network under the LTA's Land Transport Master Plan.
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6.4 Threats
• Outbreak of H1N1 virus or other epidemics in Singapore will result in a steep decline in ridership as fewer commuters will want to take public transport due to the fear of contracting the virus.
•
Safety and security threats due to terrorism.
•
Vulnerable to fluctuations in oil and diesel prices.
7. VALUABLE MISSING INFORMATION
Firstly, it may be useful to gather information on SMRT's credit history before granting the loan. Credit history refers to a record of a company's past borrowing and repaying, including information about late payments and its bankruptcy, if applicable. From its credit history, we can then determine SMRT's creditworthiness and its willingness to repay debts. We will be able to check if SMRT had default or delay its payments on debts from other banks or past creditors. This will help us in making our credit decision.
Secondly, it is noted that the group has used some of its assets under the operating lease. These leased assets are recognised as expenses under the FRS 17 and are not reflected in the balance sheets. This "off-balance sheet" item may distort some of the key ratios (e.g. leverage ratios) used in the financial analysis if the operating leases forms a substantial part of the company's financing. Hence, information on the leased asset and its liability will be useful as it will shed light on the company's actual borrowing capacity, costs of borrowing and any potential violations of its borrowing covenants.
8. CONCLUSION AND RECOMMENDATIONS
It is crucial for a company to generate cash from its operations as it shows the company's ability to translate profit into cash. SMRT is able to generate strong cash flows from its operating activities. It shows that SMRT has the financial capability to make principal and interests payments, supported by its ability to pay dividends yearly. Its leverage ratios are also improving in recent years.
Furthermore, SMRT is in a defensive transport industry. Its revenue and highly diversified operations will not be greatly affected by the economy as transportation is a basic necessity. Lead by a competent management board, coupled with many local and overseas growth opportunities and help from the Singapore government, SMRT will be able to maintain its earnings growth.
Therefore, the $30million loan to SMRT should be granted. The main purpose of the loan
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is for expansionary purposes. This expansion plan may in turn increase ridership and increase revenue too.
BIBLIOGRAPHY
1.
SMRT Annual Report for FY2007 to FY2009
2.
SMRT Interim Report for Q1 and Q2 of FY2010
3.
SBS Annual Report for FY2008
4.
OCBC Investment Report on SMRT
5.
http://www.ptc.gov.sg/
6.
http://www.lta.gov.sg/
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COVENTRY UNIVERSITY
FACULTY OF BUSINESS ADMINISTRATION
MASTERS IN BUSINESS ADMINISTARTION -
INTERNATIONAL BUSINESS
AUSM84 COURSEWORK
STRATEGY REVIEW OF SMRT CORPORATION LTD
STUDENT NAME & CU ID
MANI PRADEEP KUMAR 3939891
KAMARASAR KARTHIKA (G1091736R)
ANANDAN ANUSHEELA PRADEEPA (G1010812N)
LECTURER NAME
SHERIN BANU BATCHA
DECLARATION OF ORIGINALITY
This is to certify that the work is entirely my own and not of any other person, unless explicitly acknowledged (including citation of published and unpublished sources). The work has not previously been submitted in any form to the Coventry University or to any other institution for assessment for any other purpose.
Signed _________________________________________________
Date ___________________________________________________
EXECUTIVE SUMMARY
This coursework review's the business strategy of SMRT Corp. Ltd. The critical analysis of the external environment faced by SMRT Corp Ltd reveals that the political, economical and social factors are strongly in favour of SMRT Corp Ltd when compared to technology and legal factors. The SWOT analysis also reveals the same result that SMRT has bright future. The business strategy of SMRT Corp Ltd was reviewed. Finally recommendations were given based on external environment analysis, internal environment analysis and business strategy review.
All analysis and reviews done in the coursework forecast that SMRT Corp. Ltd has a bright future. The main factor which is helping the SMRT Corp. Ltd is the duopoly market structure in the public transport.
WORD COUNT
Number of Pages:
Total Number of Words:
Excluding the following……
Cover Page
Declaration of Originality
Executive Summary
Table of Contents
List of Figures
List of Tables
Introduction
Conclusion
Heading & Sub Heading and
Reference List & In-Text Citation
TABLE OF CONTENTS
LIST OF FIGURES
LIST OF TABLES
Table 1: SMRT Products / Operation Sales(Hoover's Inc., 2012b)
ABBREVIATIONS
SMRT - SMRT Corp. Ltd
LTA - Land Transport Authority
INTRODUCTION
SMRT established in 1987 provides light rail, subway, bus and taxi services to about 1.3 million commuters a day. Mass rapid transit (MRT) unit is the major revenue contributor for SMRT. It's MRT unit operates on 90 kilometre distance which constitutes 50 stations. MRT unit also rents some of the space in the MRT stations for commercial activities and also earns money through ads placed on taxis, buses and MRT's (Hoover's Inc., 2012a). SMRT provides engineering services and has projects outside Singapore. SMRT's only competitor is ComfortDelGro Corporation Limited (Hoover's Inc., 2012c).
Table 1: SMRT Products / Operation Sales(Hoover's Inc., 2012b)
PRODUCTS / OPERATIONS
PERCENTAGE
MRT
54
Buses
26
Taxis
9
Rental
5
Engineering & Other services
3
Advertising
2
LRT
1
Total
100
The public transport market operates in a duopoly market structure dominated by SMRT and SBS and both operating on different independent lines. SMRT and SBS have monopolistic powers over the routes during the contract period. Thus public transport means SBS and SMRT. Any positive effect or negative effect on public transport will affect both (SBS & SMRT). So in this coursework if something is mentioned as "public transport", literally it can be taken as SMRT.
EXTERNAL ENVIRONMENT CONDITIONS
To analyze the external environment conditions faced by SMRT, PESTEL analysis and Poter's Fiver Forces analysis are performed.
PESTEL ANALYSIS
In PESTEL analysis political, economic, social, technological, environmental and legal factors affecting the SMRT are analyzed.
Political
SMRT's major shareholder (54.3% share) is Temasek Holdings (SMRT Corporation Ltd 2008-2012a). Temasek Holdings is owned by the Singapore government (REACH 2012).
The government encourages public to take public transport in order reduce traffic congestion. In order to encourage public to take public transport the LTA is now integrating Bus stations and MRT stations with shopping malls thereby giving the public the chance to ride and at the same time do their purchase rather than separately travelling to area from the bus stations or MRT stations to do the purchase (Singapore Budget 2012 2011).
Thus the Government's initiative in encouraging public to take public transport and Temasek Holdings having major share in SMRT shows that SMRT has lot of political favour and support.
Economical
Singapore's expanding economy demands more workforce that Singapore population is unable to fulfill, so more and more foreigners flock to Singapore to work. Singapore's stable government and many other factors has helped Singapore to be ranked at 14th place in best place for FDI. Expanding economy due various factors like FDI has increased the foreigner population to about 36.4% (Yeoh & Lin 2012) of the total population. Thus expanding Singapore's economy expands the Singapore population which is in great need of public transport as it is the cheapest form of transport.
With current economic expansion the daily trips by 2020 is estimated to be 14.3 million. The solution to this the huge number of trips per day for a small country like Singapore is public transport. Thus any increase in ridership due to expanding economy will also benefit SMRT.
Social
The average daily ridership ('000 passenger-trips) for MRT is 2295, LRT is 111, Bus is 3385 and taxi is 933 (Land Transport Authority 2003). Growing population, exponentially growing COE prices, growing MRT line coverage , sophisticated bus services, high reliable MRT system are some of the factors that increase ridership. Thus any increase in the ridership affects positively the SMRT.
Technological
SMRT Institute which is a subsidiary of SMRT provides educational programmes to meet and grow the technological advancements in the land transportation. Nitec in Rapid Transit Technology programme jointly developed by the Institute of Technical Education and SMRT Institute provides strong foundation for students in the railway technology. This is programme is first of its kind in Southeast Asia (SMRT Corporation Ltd 2008-2012b).
SMRT International Pte Ltd, a WOS (wholly-owned subsidiary) of SMRT so strong in technology offers PM (project management), O&M (operations and maintenance), engineering and consultancy services road to rail and road transport owners around the world. SMRT International Pte Ltd services clients in various parts of the world and they are China, the Middle East, India, Taiwan, the Philippines, Thailand and Vietnam (SMRT Corporation Ltd 2008-2012c).
SMRT's SMRT institute with world class programs and projects outside Singapore would help SMRT to have an edge in fast developing technology.
Environmental
Singapore is one of the tiniest nation on the globe. Streets in Singapore take up 12% of the Singapore complete area in comparison to 15% filled by housing (Nugroho et al. 2010). Since already roads have occupied considerable amount space in this small country, future roads will be underground, already rails have gone underground.
Government is convinced that as the roads are increased the drivers on the roads will also increase. Thus the road expansion in terms of underground is not a solution for traffic congestion. So the government is thinking of improving and extending the public transport to a great extent that more and more population will opt for public transport.
Singapore's small size and growing traffic has convinced the government to make public transport the most preferred choice for commuting.
Legal
SMRT has 30 year (SMRT Corporation Ltd 2008-2012d) lease agreement with LTA so the recent faults can be rectified and lessons can be learnt from this failure. As the road to success is working hard and learning from failures. SMRT has a learnt a lot and would make use of this learning as a stepping stone for success. The image of the SMRT can be recovered. Since SMRT is a under Temasek Holdings so legal conditions are in favor of SMRT.
PORTER FIVE FORCES
Porter's five forces analysis is done to analyze the transport industry in Singapore.
Threat Of New Competition
Singapore's trains and buses industry is probably a natural monopoly with the obligatory firm being able to reap substantial internal financial systems of range with long run average price falling throughout entire range of industry outcome. With partially performance range happening at a higher outcome, companies can enjoy huge benefits and produce at cheapest.
Due to great set facilities price, the entry of more companies may result in higher costs, wastefulness and replication of resources, reducing consumer well being. Hence, great hurdle to entry in the form of great set price stops new newcomers from coming into the industry.
Threat Of Substitute Products Or Services
SMRT major business is in MRT while SBS major business is in Bus. MRT is the main product, its substitutes available are bus and taxi. Both cannot increase speed and increasing speed is not encouraged in order to avoid accidents. But in the case of rail throughout the world speed is increasing at a level unheard, hence MRT still have very good future. Thus threat from substitutes of the SMRT's main revenue generator is very low.
Bargaining Power Of Customers
Bargaining power of the customers is very low because the market operates in a duopoly market structure. The firm concentration ratio is very high and SMRT gains monopolistic power over that route for a contractual period. Customer's degree of dependency is high because the public transport is cheap and also MRT unit's reliability is very high.
Bargaining leverage of the customer is very low because SMRT is a public transport. For buyer switching cost is high as they need to buy their own car for which the COE prices are rising exponentially. Availability of existing substitute products is low as they need to get COE. COE is limited and very costly. Thus bargaining power of SMRT's customers is very low.
Bargaining Power Of Suppliers
Bargaining Power Of Suppliers is low which evident from the ranking given by the SMRT staffs.
Since it is under government the supplier can be found world wide
Intensity Of Competitive Rivalry
The trains and buses market in Singapore is a duopoly market, with SBS Transportation being the only opponent in SMRT's core services. SMRT's functions are more targeted on the MRT section while the significant managing section of SBS is in the bus market. Therefore competition between SBS and SMRT is very less. Customers are also not able to change from one opponent to another as the MRT network and bus network of SMRT and SBS cover different places of Singapore. Moreover, there is no price war among the competitors because commuting charges for public transport is dictated by Public Transport Council. Thus the intensity of rivalry for SMRT from SBS in major revenue generating unit is very low.
INTERNAL ENVIRONMENT
In order to analyze the internal environment faced by SMRT, SWOT analysis is performed.
SWOT Analysis
Strength
A Singapore's transport system is a duopoly system with a little competition between two major companies which operates and maintains the Singapore transportation industry (SMRT Corporation and SBS Transit). SMRT is the major key player in Singapore's public transport industry (SMRT Annual report, 2007). SMRT classified its diversification of business with different modes of transport (i.e. MRT, LRT, buses and taxis) and other operating segments include rental, advertising, provision of engineering consultants, project management and operation and maintenance (O&M) services both locally and overseas. It also provides repair and maintenance services for SMRT buses and taxis as well as to the external local clients. As SBS Transit is the only competitor for SMRT, the threat of new entrants is very low because of the barrier of entry. SMRT operates in a defensive industry which will not be affected during economic crisis or downtown as the transportation is a basic need for the public. Thus it gets a stable income and high quality of earnings which generates a healthy cash flow from its operations. The introduction of 67 Southeast Asia's first Euro V buses (environmentally friendly buses) and launching of 9 premium bus services can enhance their competitiveness with SBS transit (SMRT Annual report, 2012). The Opening of Circle Line from Dhoby ghuat to harbour front and harbour front to marina bay through bay front by mid-2012 will boost ridership and revenue. Refurbishing of Exchanges at Orchard, Esplanade and Jurong East stations and the new concept of shop and dine with SMRT at each circle line interchange and other main stations will also yield higher rental and revenue ( OCBC Investment research, 2009).
Weakness
A SMRT is the leading taxi operator in Singapore which manages and leases a fleet of more than 3000 taxis including sedans, limousines, MPVs and CNG vehicles. It also leases the commercial space within train network approximately 34, 4000 Sq m and also leases the fibre optic cables for its operations. As it provides rail and road transport related engineering consultancy, project management, operations and maintenance services as well as the repair and maintenance services for SMRT buses and taxis to local clients, it needs to incur high maintenance cost in maintaining and repairing their existing trains, buses and other infrastructures as stipulated in the Lease and Maintenance agreement (SMRT Summary Report, 2012). SMRT has a huge capital outlay on trains, buses and taxis. Its major weakness is that there is no control over the fares for the trains, buses and taxis as the fares are regulated by PTC and also it faces fines imposed by PTC for non-compliance of stringent Quality of Services standards.
Opportunities
SMRT has acquired considerable knowledge and experience of design, operation and maintaining both drivers and Clinched Dubai Metro's 10 year media contract under consortium which will be one of the worlds's most advanced urban rail system and awarded 6 years contract to operate and maintain the Palm Jumeirah Monorail system. By this way SMRT gets the opportunity to capitalise on their strong brand name to embark on overseas projects in countries such as Asia and Middle East and its business expansion (SMRT Interim Report, 2010). Finally, it has the benefits from the future growth of Singapore's land transport network under the LTA's Land Transport Master Plan. This will also help in the tourism industry in Singapore.
Threats
The major threats of SMRT are the government rules and regulations, the Safety and security threat due to terrorism and fluctuations in oil and diesel prices. Another periodical threat of SMRT is the outbreak of H1N1 virus or other epidemic disease in Singapore which might cause a steep decline in ridership as fewer commuters would not prefer public transport like trains or buses due to the fear that they may get the virus attack. And finally, the high fares for the public transport will also result as a threat to SMRT.
CORPORATE LEVEL STRATEGIES AND COMPETITIVE ADVANTAGE
3.1 COMPETITITVE ADVANTAGE
SMRT Competitive advantages beyond political stability under a government to firms. Singapore is a vibrant world center for transportation industry with the ability of all companies marketing, manufacturing and distribution, the headquarters of R & D and business. Transport industry will remain important in the development of the Singapore economy (Manufacturing sub-committee 2002).
SMRT is not difficult - in fact, one of Singapore's most modern systems.
There are three main reasons:
Low cost
Travelling through SMRT is low when comparing to other modes of transport. For example the cost for travelling from Singapore West End to east end through taxi would cost about S $25 for the trip. At the same time if the person travel through MRT it would cost less than S $10.
Convenience
The SMRT stations are across the island. There are four lines at present called as North-South, East-West, North-East and circle line, that all points on the map of Singapore. Each MRT stations are closely linked to each and other with very clear instructions and maps. In near future SMRT will be coming out with the downtown line which adds now convenience to the passengers.
Faster
SMRT system is faster in action in both travelling as well as waiting. It would barely take 3-5mins to wait in the station for the train to arrive and special durations during peak time. On the other hand, the travel time from western to the eastern end of the island won't acquire more than 45 minutes (SMRT Corporation Ltd 2012).
SMRT employed preposition value characterized by three elements; our business strategy alignment, strong leadership commitment and in the organizational culture. SMRT is a main transport in Singapore. New competitors have high resistance to enter the train service, railways, tunnels and stations are expensive to reproduce.
Figure 1: business strategy (SMRT 2012).
Last year, the SMRT Group achieved outstanding growth in all aspects of our business operations in a difficult environment, increased costs and competition. For the year ended 31 March 2005, the Group achieved a strong set of financial results, with a 41.8 percent increase in net profits during the preceding year (SMRT Corporation Ltd summary report 2012).
Figure 2: Fare Revenue (SMRT Corporation Ltd summary report 2012).
Particularly strong growth of SMRT taxi, while the non-payment of SMRT train systems. SMRT strives to increase their position as a socially responsible and committed to effective corporate governance. With this in mind, we have developed a comprehensive policy and ethics communicated to staff during the year. The essence of this policy is contained in a written Code of Ethics and Professional Conduct, which serves as a moral compass for employees and management in business decisions and behavior (SMRT Corporation Ltd summary report 2012).
3.2 COMPETENCES
40 km fully underground Downtown Line is currently in various stages of planning and construction, and passes through 33 stations with a capacity of 500,000 passengers per day. It connects the north-western and eastern parts of Singapore to the new downtown Marina Bay in southern and central business district. It will be implemented in three stages: stage 1, 2 and 3 opening by 2013, 2015 and 2016 (SMRT 2008).
SMRT also launched a more creative and innovative ways of advertising media to increase advertising revenue and abroad looking for work in areas where the capacity of the base.
3.3 SHAREHOLDERS
SMRT maintain dividend policy, despite the difficult operating environment. The Commission has proposed a final dividend of 5.70 cents per ordinary share, subject to shareholder approval at its 13th Meeting on 12 July 2012. If approved, the dividend on August 3, 2012. Together with the interim dividend of 1.75 cents, this will make a total dividend for the financial year 2012 to 7.45 cents per share, a total value of $ 113 million (SMRT Corporation Ltd & TIBS Holding Ltd 2001).
SMRT businesses enjoy steady income throughout the year. In the Medium term, the Boon Lay and Circle Line extension will encourage growth while overseas projects expected to drive growth in the long term.
SMRT operation creates an operating cash flow more stable. At S$1.07 SMRT is possible inflationary pressures on capital of 11% net dividend yield of at least 5.2%, giving a total return of approximately 16% (SMRT Corporation Ltd & TIBS Holding Ltd 2001).
3.4 NON FARE BUSINESS
Operational challenges remain for the team, although revenue growth is expected to continue in the second quarter of FY2013. Fare revenue is expected to be higher than the last few years because of contribution of circular line and rising ridership levels. Whereas, there would a prolonged benefit from non fare business like high taxi revenue, rental and advertising sales (SMRT 2012).
The group's profitability is expected to continue to affect higher staff costs, depreciation and maintenance. In particular, staff costs for bus and rail transport is expected to be higher due to increased personnel and adjustments in salary. Bus business still face challenges, such as tariff adjustments are not consistent with the increase in operating expenses. Government has recognized the problems with running the business and sustainable bus operators. Several government initiatives and the current pricing formula should be completed BY early 2013, will focus on addressing these challenges (SMRT 2012).
RECOMMENDATIONS
SMRT corporate strategy should focus more on MRT units.
The SMRT should focus on MRT unit because it is more eco-friendly which is the one the whole world is expecting - Use the following points to answer this point.
Rails are more eco friendly when compared to road transport. or in other words carbon foot print to transport 100 persons by road transport is very huge when compared to rail. The government should focus on trains, which have higher fuel efficiency and require less road usage per passenger. That said, a long term solution would be to better design a comprehensive rail and bus network, which would reduce the need for taxis.
Urban transport is a significant contributor to climate change
(Better Public Transport for Europe through Competitive Tendering - 2003)
(Pollution level in Singapore that to due to public transport like car Vs. bus and bus Vs. MRT)
Kyoto protocol and pollution level accepted to reduce by the public transport for Singapore
Public transport is the most efficient mode of transportation in terms of space consumption per traveller and is currently the best answer to mobility needs in densely populated areas.
(Better Public Transport for Europe through Competitive Tendering - 2003)
CONCLUSIONS
