Here's why losing is a good thing for both SMRT and CDG

Future tenders will have higher prices.

Losing to a foreign operator might actually be a good thing for both ComfortDelGro and SMRT.

According to analysts, the Land Transport Authority (LTA)'s decision to award the first bus package to a firm that did not enter the lowest bid will help the incumbents improve profitablity of their bus operations.

"The bidding result of the first package is expected to set the tone for future tenders, as well as negotiations between incumbents and the LTA on the bus routes retained Tower Transit winning the bid removes our previous concerns that prospective bus operating margins could face pressure, which would have been the case if SMRT won the Bulim Package due to its overly-aggressive bidding price [which was] 26% lower than the winning bid," stated CIMB analysts Roy Chen and William Tng.

Eugene Chua of OCBC Investment Research seconded this sentiment, noting that the award will “certainly alleviate” market concerns that SMRT’s low bid will drive down the benchmark used by LTA.

“With LTA using the tenders of the first three packages as a price-discovery mechanism, we are encouraged by the first tender outcome,” Chua noted.

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