SMRT CORPORATION LTD
S53.SI SMRT Corp (MRT SP) - Remaining Optimistic About Re-Rating Catalysts
- On the recent share price weakness and 5.4% uplift to FY16 earnings, we upgrade SMRT to BUY (from Neutral) with a DCF-based SGD1.61 TP (from SGD1.60, 13% upside).
- While near-term growth may remain muted amidst high maintenance costs, fares reduction and train revenue downside risks from DTL2’s start, we believe transition of bus operations to GCM would boost margins, bus sales to LTA would release cash and rail reforms clarity would help re-rate the stock.
3QFY16 (Mar) profits included a one-off.
- SMRT Corp’s (SMRT) reported 3QFY16 profit included c.SGD3.3m received from the Public Transport Security Council to offset certain expenditure incurred in FY15.
- Excluding this one off, 9MFY16 would have accounted for 89% of our FY16 estimate. This is vs an earlier 93% estimate of our FY16 forecast.
Raising estimates, but expect near-term weakness.
- We raise our FY16 estimates by 5.4% to account for SMRT’s strong 3QFY16 results, but believe near-term growth may remain muted amidst a 1.9% reduction in public transport fares (starting Dec 2015), continuing rise in maintenance costs and an estimated SGD5m-6m loss of revenue on the start of Downtown Line 2 (DTL2) operations since late Dec 2015.
No disclosure on rail reforms.
- Although management restrained from providing details relating to the talks with the Land Transport Authority (LTA) on rail reforms, we believe such reforms could be implemented in 2018/early 2019. As a part of rail reforms, we estimate the sale of rail assets in FY19 could add SGD0.50 to our DCF-based SGD1.61 TP.
Reasons to remain positive.
- In addition to a rise in bus operating margins from low fuel prices and transition into the bus government contract model (GCM), we expect sale of non-Bus Service Enhancement Programme (BSEP) bus assets to generate SGD207m of cash inflow in FY17.
- We maintain that rail reforms are inevitable and the LTA could provide some clarity on this as early as 2017.
Declining trend in taxi hire out rates.
- In line with our expectations, hire out rates for SMRT’s taxi fleet has been declining amidst increased competition from private car hire apps.
- The YTD hire out rate stood at 97%, while the same for 3QFY16 was 95%.
- We expect this declining trend to be arrested once the LTA brings private car hire apps under regulatory purview in 2016.
Shekhar Jaiswal
RHB Research
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http://www.rhbinvest.com.sg/
2016-01-27
RHB Research
SGX Stock
Analyst Report
1.61
Up
1.60
