SINGAPORE (May 17): SBS Transit’s share price is up some 51% this year alone. But despite the surge, the downside may be limited.

Investors tend to flock to comparative plays when companies are privatised. An example of this is the privatisation of Keppel Land, which benefited mid-cap property players such as UOL Group.

In this vein, the privatisation of SMRT in 2016 has probably put a floor under SBS Transit’s share price and valuation.

With no other stable proxy for defensive domestic demand, SBS Transit may remain overvalued for months, maybe years.

For the 1Q19 ended March, SBS Transit posted a 23.3% increase in earnings to $20.7 million, from $16.8 million a year ago, as revenue rose 6.9% to $350.8 million.

Earnings per share (EPS) on a fully diluted basis rose to 6.63 cents for 1Q19, from 5.38 cents in 1Q18.

See: SBS Transit posts 23.3% rise in 1Q earnings to $20.7 mil on higher revenue

Operating margins have been increasing since 2014, with the biggest gain from FY17 to FY18.

The rise in margins is attributed to a fully operational Downtown Line (DTL) for a full year, the rise in ridership on the North East Line (NEL) and the bus contracting model (BCM), which came into operation from 3Q16.

Despite the sterling performance and its share price performance over the past five years, why isn’t SBS Transit is not seen as a growth stock? And why is its share price likely to remain overvalued?

Find out more in our story, “Transport play: SBS Transit only proxy for defensive domestic demand, underpinning its overvalued share price”, in The Edge Singapore (Issue 882, week of May 20), available at newsstands now.

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