The PTC announced an overall 4.6% reduction in bus and train fares from 1 April 2009. This more than offsets the fare increases awarded over the past 3 years. The fare revision for 2009 has been brought forward to April instead of October. 2 key measures will be in place – i) fare rebate and ii) transfer rebate. The next revision will take place in 1 July 2010.

Fare rebate between 1 April 2009 and 30 June 2010: For a period of 15 months, all adult/senior citizen concession EZ-Link fares will see a 2-cent reduction per trip across all fare bands. Child/student concession EZ-Link fares will be reduced by 1-cent per trip.

Transfer rebate increase from 1 April 2009: Transfer rebate for all adult/senior citizen concession EZ-Link journeys will be increased by another 10 cents to 50 cents. This is on the back of the earlier increase of 15 cents which was effected in October 2008. Similar to the 15-cent rebate, this 10-cent increase in rebate will also be two-third borne by the public transport operators (PTOs) with commuters bearing the remainder.

Passing on more than Budget savings: The above measures will cost the PTOs S$80MM in lost revenue over the next 15-month, effectively passing on more than the savings from the Government Budget of S$37MM.

Profitability impact: Excluding the savings passed on from the Budget, the incremental cost to the PTOs amount to S$43MM for the 15 months, of which we estimate CD will share 55% and SMRT 45% based on ridership share. This could partially be offset by ridership improvement on lower fares as commuters switch from private to public transport.

ComfortDelgro’s overseas earnings to compensate and spur growth: CD’s Singapore bus and train business is only 23% of its revenue and 20% of EBIT, with growth prospects coming largely from overseas, especially China and Australia (where fuel cost is subsidized or passed through) which we remain positive. We reduced our FY09/FY10 earnings estimates by 2.3%/3.9%. Maintain OW and our Dec-09 DCF PT of $2 (WACC: 9% with a long-term growth rate of 2%).

SMRT's high Singapore exposure might be disadvantageous: SMRT derives almost all its earnings from Singapore. Hence, it might be more exposed to the fare regulatory risks. It also faces the potential saturation of the Singapore land transport business over time. We reduced our FY10/FY11 earnings estimates by 6.8%/6.6%. Maintain Neutral and our Dec-09 DCF PT of $1.80 (WACC: 7.5% with a long-term growth rate of 1.5%).

Key downside risks to PT for CD & SMRT: (1) Ridership decline, (2) fuel cost surge.