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SMRT right not to bid for UK taxi firm now: Analysts

SINGAPORE — SMRT’s decision yesterday against bidding for Addison Lee was the right move, with the Singapore company’s financial position making it difficult to buy out the British taxi operator pitched at S$1.6 billion, analysts told TODAY, adding that SMRT should focus on fortifying its business at home before acquiring overseas assets.

An SMRT bus and train in Singapore. Photo: OOI BOON KEONG

An SMRT bus and train in Singapore. Photo: OOI BOON KEONG

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SINGAPORE — SMRT’s decision yesterday against bidding for Addison Lee was the right move, with the Singapore company’s financial position making it difficult to buy out the British taxi operator pitched at S$1.6 billion, analysts told TODAY, adding that SMRT should focus on fortifying its business at home before acquiring overseas assets.

“To start with, SMRT’s market capitalisation was less than S$1.6 billion as of its last financial year ended March 2014. In the same period, cash flow was negative and gearing stood at 65 per cent, while it also suffered its first loss in its fare business … It has a lot to do now at home and it doesn’t need any distraction abroad,” IG Markets analyst Ryan Huang said.

Channel NewsAsia had reported on Saturday, citing Britain’s Sky News, that SMRT was considering buying Addison Lee after private equity firm Carlyle Group, the majority owner of the unlisted British taxi firm, put it up for sale.

Before the market opened yesterday, SMRT issued a short statement saying: “The company was approached by an investment bank on the possible sale of Addison Lee. Having considered the matter, the company has decided not to make a bid at this stage to acquire Addison Lee.”

It did not provide other details.

Mr Huang also noted that SMRT’s last overseas acquisition — a relatively small S$68.4 million purchase of a 49-per-cent stake in Shenzhen-based bus and taxi operator Zona in 2009 — was not particularly successful, with related goodwill impairment contributing to SMRT suffering a quarterly loss last year.

Meanwhile, in its fiscal first quarter ended June 30, SMRT continued to be pressured by massive operating expenses due to growing staff and maintenance costs as its train and bus fleet expands. As a result, its fare business — covering bus, rail and LRT operations — remained in the red despite fare increases in April.

Against this backdrop, the priority now is for SMRT to turn around its domestic fare business, said CMC Markets analyst Desmond Chua.

“That should entail working on productivity to tackle labour constraints and improving networks. At this point, money is certainly better spent in Singapore, instead of going to London where competition is very stiff following the emergence of Uber, GetTaxi and other cab service solutions,” he said.

The arrival of Uber — a ride-sharing application — is expected to cut demand for traditional taxi services in the British capital, where thousands of cab drivers staged a protest late last month against the app as well as unlicensed mini-cabs.

However, SMRT does not have to curb its overseas ambitions, the analysts noted, saying that the group’s new engineering services arm is poised for growth beyond Singapore.

“The group is now focusing on expanding overseas through consultancy rather than acquisition,” Mr Huang said, referring to SMRT’s recent move to set up Singapore Rail Engineering to export rail expertise.

“On this front, I think Indonesia is where they should look at, as the country is now looking to vastly improve its transport infrastructure.”

Domestically, SMRT’s long-term outlook is also positive despite the downside pressure now, Mr Chua said.

“The Government’s plan to take over bus services infrastructure — which should begin gradually next year — will be a let-up of cost pressure on SMRT. Furthermore, we are still looking at a growing population and fares will continue to rise, so its performance has a lot of upside,” he said.

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