SMRT CORPORATION LTD
S53.SI SMRT Corp - Pleasantly Surprised By 3QFY16 Results
- We are positively surprised by SMRT’s 3QFY16 results.
- Quarterly profit of SGD36.9m (RHB est. of SGD24.0m) grew 63% YoY and 43% QoQ aided by a strong return to profitability by train operations and growth in bus and taxi profits.
- We leave estimates unchanged and maintain a Neutral rating with SGD1.60 TP as we await clarity from the management on sustainability of high operating margin for train business.
- We maintain that rail reforms, once announced, would help in re-rating of the stock.
Results exceed expectations.
- SMRT’s 9MFY16 profit of SGD82.7m (+18% YoY) accounts for 93% of our FY16 estimate. Expansion of operating margin for taxi business and positive operating margin for bus business in 9MFY16, along with a strong improvement in train operating margin in 3QFY15 were the key reasons for profit growth.
Are current margins sustainable?
- In addition to lower fuel costs and higher ridership, expansion of bus and train operating margins were aided by receipt of training grants and funding from Public Transport Security Committee, respectively.
- We leave our estimates unchanged as we await clarity from SMRT on the recurring nature of such grants and funding received by the company.
- SMRT is hosting an analyst briefing for 3QFY16 results on 26th Jan at 8.30am (Singapore time).
Sale of bus assets in 2016.
- We maintain that SMRT could generate SGD207m of cash inflow from the sale of non-bus service enhancement programme buses at 10% discount to book value to the Land Transport Authority (LTA).
- Without disclosing the amount raised from sale, SMRT disclosed the sale of 110 BSEP buses to LTA during the quarter.
Continues to make progress on RFF discussions.
- SMRT has made some progress in its discussions with LTA on the transition to a new rail financing framework (RFF).
- We maintain that confirmation of such transition would re-rate the stock. We estimate the sale of rail assets at a 10% discount to book value in FY19 could add SGD0.50 to our TP.
Outperforms the index.
- Although SMRT’s share price has declined YTD, it has outperformed Singapore’s Straits Times Index. In addition to announcement of RFF, such strong results would re-rate the stock.
Shekhar Jaiswal
RHB Research
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http://www.rhbinvest.com.sg/
2016-01-26
RHB Research
SGX Stock
Analyst Report
1.60
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1.60
