Kim Eng "hold call" on SMRT with price target of $1.80
Still a smooth journey
3Q09 profit rose 7.6% yoy, inline with our forecast, driven by higher MRT profits and rental income. QoQ, profit fell 3% as LRT and Bus losses widened (the latter due to higher costs from higher service quality standards), while fuel cost edged higher sequentially despite lower diesel costs as SMRT paid 30% more for electricity. But lower staff costs helped EBITDA margin recover slightly to 35.9% (2Q09: 35.4%, 3Q08: 36%).
Benefited from higher ridership & rental
Driven by the recession and supportive government policies for public transport, more Singaporeans are taking trains and buses. In 9M08, MRT ridership rose 10.8% YoY while Bus ridership rose 5.1% YoY. Also, rental income from 28 refurbished train stations accounted for 21% of operating profit in 3Q09, up from 17% a year ago.
Costs should peak soon
SMRT lost $2m in profit in 3Q09 due to a hedge executed on diesel at higher prices. But the current contract should expire by the end of March 2009, which is the same time that electricity prices are set to fall 25%. With staff costs expected to head lower, the rising costs that have plaqued SMRT for a year now should start to trail off.
Budget goodies likely negated by lower fares
SMRT should see earnings boosted by 10-12% from the Jobs Credit scheme announced in the 2009 budget. There are also other goodies such as a road tax rebate and waiver on diesel tax for non-hired out taxis. However, SMRT is likely to pass on most of these savings to riders and drivers. In addition, it has decided not to seek a fare increase this year; in fact, there is a chance it will cut fares to reflect the economy. In addition, the rental kicker that provided a boost in FY09 will not recur in FY10 as most tenants are already paying higher rents and the number of refurbished stations is likely to remain static.
No catalysts; maintain HOLD
While SMRT remains a relatively defensive story, valuations are still too expensive and dividend yield unexciting, given the lack of catalysts. Given that, we maintain our HOLD call with a price target of $1.80.
3Q09 profit rose 7.6% yoy, inline with our forecast, driven by higher MRT profits and rental income. QoQ, profit fell 3% as LRT and Bus losses widened (the latter due to higher costs from higher service quality standards), while fuel cost edged higher sequentially despite lower diesel costs as SMRT paid 30% more for electricity. But lower staff costs helped EBITDA margin recover slightly to 35.9% (2Q09: 35.4%, 3Q08: 36%).
Benefited from higher ridership & rental
Driven by the recession and supportive government policies for public transport, more Singaporeans are taking trains and buses. In 9M08, MRT ridership rose 10.8% YoY while Bus ridership rose 5.1% YoY. Also, rental income from 28 refurbished train stations accounted for 21% of operating profit in 3Q09, up from 17% a year ago.
Costs should peak soon
SMRT lost $2m in profit in 3Q09 due to a hedge executed on diesel at higher prices. But the current contract should expire by the end of March 2009, which is the same time that electricity prices are set to fall 25%. With staff costs expected to head lower, the rising costs that have plaqued SMRT for a year now should start to trail off.
Budget goodies likely negated by lower fares
SMRT should see earnings boosted by 10-12% from the Jobs Credit scheme announced in the 2009 budget. There are also other goodies such as a road tax rebate and waiver on diesel tax for non-hired out taxis. However, SMRT is likely to pass on most of these savings to riders and drivers. In addition, it has decided not to seek a fare increase this year; in fact, there is a chance it will cut fares to reflect the economy. In addition, the rental kicker that provided a boost in FY09 will not recur in FY10 as most tenants are already paying higher rents and the number of refurbished stations is likely to remain static.
No catalysts; maintain HOLD
While SMRT remains a relatively defensive story, valuations are still too expensive and dividend yield unexciting, given the lack of catalysts. Given that, we maintain our HOLD call with a price target of $1.80.
posted by Bryan Chin @ 9:48:00 PM
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