SMRT CORPORATION LTD
S53.SI SMRT - Rail losses to continue
- 2QFY3/16 net profit of SGD25.7m in line. 55% of full-year estimates.
- Rail remained in the red. Better bus profits on higher revenue and relief from lower energy cost. Stronger showing from non-fare businesses.
- At rich valuations of 27x P/E and 2.2% yield, the stock has priced in a perfect transition even though details are still under negotiation. Maintain SELL and SGD1.10 TP.
Better bus profits, rail remains in the red
- 2QFY3/16 net profit of SGD25.7m was in line with 1H16 at 55% of full-year estimates. Its rail business continued to incur losses due to higher repair & maintenance, staff and depreciation expenses.
- Profitability for the bus segment improved due to higher revenue and cost relief from lower energy cost.
- EBIT for its non-fare businesses improved significantly to SGD33.7m (+21.7% YoY) due to stronger rental, advertising and taxi performance.
- Management remains in discussions on a transition to a new rail financing framework and has begun negotiations on the new bus contract terms after the existing license expires in Aug 2016.
Rail and bus transition terms remain hazy
- The company’s earnings outlook remains lacklustre. We forecast sustained losses for the rail business due to the impending fare cuts of 1.9% from end-2015.
- Further, higher costs to improve system reliability are not captured in the fare adjustment formula.
- We maintain that the Street has taken a far too simplistic view on the impending rail transition and has ignored the finer details that are still under negotiation. Furthermore, the timing for a transition remains hazy.
- With the stock trading at rich valuations of 27x P/E and yielding only 2.2%, we believe it has already priced in a perfect transition which is unlikely to be the case.
- Maintain SELL with unchanged TP of SGD1.10, based on 20x FY3/16 EPS.
Derrick Heng CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2015-10-26
Maybank Kim Eng
SGX Stock
Analyst Report
1.10
Same
1.10
