SINGAPORE (June 8): RHB has reiterated its “overweight” rating on Singapore’s land transport sector, after the Land Transport Authority (LTA) on Tuesday issued the tender for the third bus package.

In a Wednesday report, RHB also kept its “buy” recommendations on ComfortDelGro and SMRT with targets of $3.40 and $2.25, respectively.

“As the market already expects that incumbents (SMRT and ComfortDelGro subsidiary SBS Transit) will not win this tender, a contrary outcome will be positive for the winning incumbent operator,” says RHB analyst Shekhar Jaiswal.

While both ComfortDelGro and SMRT are currently losing money in its core bus operations, the implementation of Government Contracting Model (GCM) for public busses in Sep 2016 will enable the companies to earn 7-8% operating margin, Jaiswal says.

Finalisation of the latest tender will also allow ComfortDelGro and SMRT to finalise the sale of its buses to the government.

LTA’s third bus package, named the Seletar Bus Package, comprises 24 existing services and two new services which will be announced closer to the commencement date.

The bus services will be operated from Ang Mo Kio, Yio Chu Kang and Yishun Bus Interchanges, and will be supported by the new Seletar Bus Depot located off Yio Chu Kang Road, which is scheduled to be completed by the third quarter of 2017.

The package consists of about 420 buses, growing to about 500 buses in 2023 in tandem with new developments and projected growth in ridership.

The bus services will be operated by the successful tenderer for a service term of five years with the possibility of a two-year extension for good performance, LTA said in a statement on Tuesday.

Local incumbents SBS Transit and SMRT failed to secure LTA’s first two tenders, which were both won by UK-based transport operators.

The first bus package, the Bulim package, was awarded to Tower Transit, while the second bus package, the Loyang package, was awarded to the Go-Ahead Group.

As at 12.13pm, shares of ComfortDelGro and SMRT are trading flat at $2.74 and $1.53 respectively.