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THE final outcome of the government's bidding exercise for the first public bus service contract will reflect a reference for future negotiations of existing transport packages held by incumbent operators SMRT Corporation and ComfortDelGro, a CIMB Research report this week said.
Eight bidders were shortlisted to bid for the right to operate 26 services out of the new Bulim depot in Jurong West from the second half of next year, The Straits Times reported on Wednesday.
The decision, likely to be out in April, should shed light on the Land Transport Authority's priority: low price, or diversification of operators.
The lowest bid - S$93.7 million - came from SMRT, which is 25 per cent below the second-lowest bid price by SBS Transit. SBS Transit is part of ComfortDelGro. The highest bid, at S$153.5 million, came from Britain's Go-Ahead.
"SMRT seems to be an outlier, with its bid being considerably lower than the rest, though all the bidders' had the same set of basic assumptions (oil price, labour cost, etc) provided by the government," the CIMB report said.
"Apart from the natural cost advantage of being an incumbent operator, a plausible explanation could be that SMRT is willing to gain market share at the expense of margins."
SMRT has about 25 per cent market share of Singapore's public bus business, while ComfortDelGro has 75 per cent.
"If SMRT is awarded the Bulim contract, there could be ripple effects such as more competitive bidding and lower margins for future public bus packages," CIMB said.
In a scenario that the bus operating margin shrinks to zero, SMRT's target price would decrease from S$1.80 to S$1.61 and ComfortDelGro's from S$3.42 to S$3.12.
CIMB kept its "overweight" rating on the Singapore land transport sector. ComfortDelGro is its sector top pick due to its strong balance sheet and its capability of deploying capital into overseas growth strategy.