SMRT Corporation Ltd. - Will pay rise really increase productivity?

26/3/2013 – Brokers believe a recent wage hike at SMRT deals another blow to SMRT’s profitability.

The train, bus, retail and advertising company has signed an agreement with the National Transport Workers’ Union to raise salaries of all the non-executive staff.

It says the hike will help to build a productive, motivated and efficient workforce.

But the exercise will cost S$10 mln.

DMG OSK Research downgraded SMRT to SELL with a target price of S$1.43 while CIMB Research maintained UNDERPERFORM rating with a target price of S$1.59.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Will pay rise really improve productivity?

SMRT says the wage revision as a step towards creating a more productive, motivated and efficient workforce, which will in turn make the public transport system safer and more reliable.

Well, let's think about that for a moment.

A pay rise might motivate staff. But will that necessarily make them more productive or efficient?

We don't begrudge the staff a salary increase, but we'd like to know what productivity or efficiency improvements have been agreed.

For example, are staff going to work longer working hours? Have shorter breaks? Cover more ground inspect more pieces of equipment? Handle customers at the station controls faster?

In the absence of any such concessions by the unions, it seems to us that this has nothing to do with productivity or efficiency, but is entirely a political move to ensure staff don't strike again.

2. Will it be able to maintain its dividend?

Given that profitability will be hit again, and in the absence of higher earnings from productivity improvements, what will the impact on the dividend be?

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).

Sources & further information

Statutory disclosure I
Statutory disclosure II
OCBC Research Report
CIMB Research Report

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