Possibility of S$50m fine for SMRT is remote: Analysts

SINGAPORE — Train operator SMRT could potentially face a hefty fine of up to about S$50 million for the massive breakdown on Tuesday (July 7) which affected up to 250,000 commuters across the island, Maybank Kim Eng said in a research note, although the possibility of that happening is unlikely and the actual fine is likely to be closer to between S$1 million and S$2 million.

In the research note, Mr Derrick Heng of Maybank Kim Eng noted that Parliament passed a Bill in February last year that increased the maximum fine for every rail disruption to 10 per cent of an operator’s annual fare revenue for the relevant rail line — up from the previous maximum fine of S$1 million.

SMRT’s rail revenue for its fiscal year ended March amounted to S$644 million for its entire North-South and East-West lines, as well as the Circle Line, suggesting a maximum fine of S$64.4 million. 

“(Seeing as) the latest service disruptions did not affect the Circle Line, we reckon that the maximum fine for this incident could be closer to S$50 million,” wrote Mr Heng. “While the actual fine may be much lower than the maximum possible, it nonetheless poses risks to our forecasts.” 

An analyst who declined to be identified said that the potential maximum fine of S$50 million is not “sustainable” given that it amounts to nearly half of SMRT’s net profit for the full year ended March, and estimated that the actual fine would likely be closer to S$1 million. 

He added that Parliament most likely passed the 10 per cent maximum figure to provide assurance that it takes rail reliability seriously.

Mr Roy Chen of CIMB Research also wrote earlier this week that the fine might range between S$1.5 million and S$2 million. 

“In 2014, it was fined a total of S$1.6 million for four rail disruptions in 2013 and 2014. In 2012, it was fined S$1 million for two massive breakdowns in December 2011. Given the scale of the recent breakdown, we think a fine of S$1.5 million to S$2 million is possible,” he reasoned.

Analysts warned that SMRT’S bottom-line could take a hit not only from the potential fines, but also from potential repair and maintenance costs. 

“If any operator does not frequently meet the quality standards, these stiffer fines will affect its earnings. There is also the potential that repair and maintenance costs are going to be even higher after this disruption,” said Mr Andrew Chow, Head of Research for Singapore at UOB Kay Hian.