Trump U-turn on NYC’s congestion pricing programme could dampen ST Engineering sentiment, but limited impact expected

THE Trump administration reversed federal approval for New York City’s congestion pricing programme on Feb 19. Even though ST Engineering’s subsidiary in the US, TransCore, runs the contract, analysts are forecasting just a slight dampening of investor sentiment with minimal direct impact on the stock.

DBS Group Research noted that TransCore has already completed the engineering, procurement and construction phase of its contract with the Metropolitan Transportation Authority (MTA).

Hence, it does not anticipate a significant financial impact on the technology and engineering group, even though this development “could slightly dampen investor sentiment” towards the group.

The research house added that despite the operations and maintenance portion accounting for 60 to 70 per cent of the total contract value, it represents only 2 to 3 per cent of revenue for the urban solutions and services segment, and constitutes less than 1 per cent of the group’s revenue.

Lorraine Tan, director of equity research at Morningstar, similarly expects minimal direct impact on ST Engineering, explaining that the group has already been paid for the contract to set up the system.

In 2021, ST Engineering announced that it was buying TransCore. The US transportation company had been contracted to deliver a congestion pricing project that will levy a fee on drivers entering the busiest parts of Manhattan, New York – the first such project in the US.

In the group’s earnings call for the third quarter last November, chief financial officer Cedric Foo disclosed that TransCore was awarded an order worth US$1.7 billion to develop and maintain the back office system, as well as operate customer service centres for various toll highways and bridge agencies in New Jersey.

However, ST Engineering did not include this order win in its latest order book as the incumbent vendor had lodged a protest against the award.

DBS Group Research said: “The street has likely not priced in significant new congestion pricing contract wins for TransCore in the US, given the lack of visibility and the political backlash leading up to the programme’s launch.”

New York City’s congestion pricing programme began operating just last month. The toll began on Jan 5, with drivers entering parts of Manhattan charged US$9 during peak hours.

The West Side Highway and the Franklin D Roosevelt East River Drive are exempt from the charge, but motorists will pay the fee if they leave those highways and enter the district south of 60th Street.

The programme is expected to raise US$15 billion to the MTA, the agency that runs New York City’s century-old subway and commuter-rail lines, for desperately needed upgrades. Such upgrades include modernising subway signals from the 1930s and making more stations accessible.

Following the federal government’s decision on Feb 19, the MTA filed a lawsuit on the same day, claiming that efforts to halt the programme are illegal and sought a judicial order to declare them “null and void”, Bloomberg reported.

New York Governor Kathy Hochul affirmed that the congestion pricing programme remains in place during the legal proceedings.

Analysts pointed out that the federal revocation introduces uncertainty regarding the future of congestion pricing initiatives, possibly deterring other municipalities from rolling out similar systems.

Paul Chew, head of research at brokerage Phillip Securities, said: “Subject to legal challenges, any cancellation will be negative in the near term in terms of pursuing new congestion pricing projects in the US.”

However, he affirmed that “Transcore still captures operations and maintenance revenue from this project, albeit a small contribution”.

DBS Group Research further pointed out that the likelihood of the Trump administration terminating the programme remains unclear, citing “little legal precedent for the federal government unilaterally revoking approval for a programme of this scale”.

It added that legal proceedings will be critical in determining the programme’s long-term viability, as well as the prospects for similar initiatives in other US cities.

The research house maintained its “buy” rating on ST Engineering, with a target price of S$5.40.