SINGAPORE (Sept 30): SMRT Corp will pay a fine of $5.4 million for a major breakdown in rail transport on July 7, but OCBC Investment Research believes the rail operator has learned from the episode and is ramping up maintenance processes to prevent future lapses.

“While the market had been concerned that LTA may hit SMRT with the maximum fine at 10% of its FY2015 revenue ($64 million), we highlighted previously that a lower penalty is more likely and went on to incorporate a potential fine amount closer to $20 million for FY2016,” says OCBC in a note published today.

OCBC is also of the view that the appointment of a new transport minister could mean that reforms in the rail transport sector may “potentially be accelerated”. As a result, the brokerage thinks the conservative assumptions it incorporated in a previous update of August 27 on the size of the potential fine (higher than what transpired) and higher maintenance expenses is more than adequate for now.

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