Rivalry 'won't work for MRT'
By Christopher Tan
THE chairman of ComfortDelGro, Mr Lim Jit Poh, wants one operator
for trains and another for buses because 'it's plain to see that
competition for certain industries doesn't work in a small economy
such as ours'.
He expressed his reservations on competition when asked to comment
on the possibility of SMRT Corp taking over the money-losing
North-East MRT Line (NEL) now run by ComfortDelGro's subsidiary,
SBS Transit.
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It is a view that mirrors events in the media industry last week
when rivals Singapore Press Holdings and MediaCorp consolidated
their positions by merging their mass-market television and
free-newspaper operations.
Mr Lim told The Straits Times: 'It is in my opinion better to
centralise the rail and bus operations; that is, have one operator
for each.'
While insisting that such a plan was not under way, he indicated
that one possibility would be for SBS to sell the NEL to SMRT and
buy its bus business, which SMRT acquired for $194 million in
2001.
'Let the different modes compete with each other and let commuters
decide which to choose from,' Mr Lim said, noting that taxis, the
third mode, 'are already deregulated, with three more new players
on the scene'.
'At the end of the day, this will be best for all,' he said.
The potential of a deal between the transport operators was first
floated by Transport Minister Yeo Cheow Tong last year, when he
said the Government would not object to a merger of rail
operations.
He reiterated it soon after, saying SMRT will automatically operate
all future lines if it took over the NEL.
With the media merger, talk of a rail deal resurfaced. Yesterday,
the speculation drove ComfortDelGro's share price five cents higher
to a record $1.36.
It surpassed most analysts' price targets for the year as a hefty
15.34 million shares changed hands, putting it fifth on the list of
most active stocks.
SMRT's shares moved half a cent higher to 70 cents on a trading
volume of 2.64 million shares.
Said one analyst: 'The benefit of a deal is seen to be more
immediate for ComfortDelGro. It will stem its losses on the
North-East Line, which is about $20 million a year. The benefit for
SMRT, however, is a bit more longer term in nature.'
Observers see the two transport operators facing similar challenges
as the media companies.
One has a money-losing rail business, while the other has a small
and not-so-profitable bus operation.
But unlike SPH and MediaCorp, which had been talking for about two
years, the transport companies, sources said, had met only once on
the issue.
'So far, there is nothing,' said SMRT chief executive Saw Phaik Hwa
yesterday, maintaining that it did not make sense to pay for a
money-losing company.
But she is not saying never, adding that 'it all depends on the
deal'.
However, Ms Adele Yeo, an analyst at investment bank JP Morgan,
said investors should not hold their breath for a deal.
'We do not see such plans in the near term,' she said.
A ComfortDelGro insider said yesterday: 'If we have to pay SMRT to
take over the line, we might as well run it ourselves.'
The Straits Times understands that consultants engaged to assess
the NEL had concluded that it would be profitable in the long
run.
Analysts concur.
Kim Eng Securities transport analyst Lisa Lee said the 20km line
would lose about $18 million this year and will 'break even in 2007
or 2008'.
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