SMRT CORPORATION LTD
S53.SI SMRT Corporation - Results good, outlook poor
- 3QFY16 net profit jumped 63% yoy to S$37m on broad-based improvements.
- 3QFY3/16 earnings above expectations at 46%/43% of our/consensus forecast due mainly to higher-than-expected rail profit, which we think is unsustainable.
- Outlook of fare businesses remains challenging; full impact of the 1.9% fare cut and ridership diversion to the DTL stage II will kick in from 4QFY16.
- Maintain Reduce, with a slightly higher TP of S$1.40.
■ 3QFY16 above expectations, surprised by rail
- SMRT's 3QFY16 earnings came in above our expectations, at 46% of our FY16 (9M16 at 102%) forecast.
- The surprise was mainly due to higher rail profit, which is unsustainable, in our view. After three consecutive quarterly losses, rail posted a positive operating profit of S$7.4m in 3QFY16 (vs. S$3.8m loss in 2QFY16 and our forecast of S$3m loss), helped by higher government grants received and still-moderate rail maintenance-related expenses (MRE) during the quarter.
■ Non-rail segments continued to perform in 3QFY16
- Bus operating profit widened qoq from S$1.1m in 2QFY16 to S$3m in 3QFY16 (3QFY15: S$0.7m loss), due mainly to the lower diesel cost.
- Operating profit of non-fare businesses (taxi, rental, advertisement, etc) was largely flat qoq, but 18.5% higher yoy due to lower taxi contribution in 3QFY15.
- All included, group net profit rose 63% yoy to S$37m in 3QFY16 (3QFY15: S$23m).
■ Strong headwinds for fare businesses from 4Q16 onwards
- We expect SMRT’s rail and bus fare revenue to be adversely impacted by the Land Transport Authority’s (LTA) 1.9% fare cut and the operations of the Downtown Line (DTL) stage II (started 27 Dec 15).
- Management estimated that the ridership diversion to DTL alone could result in S$5m-6m fare revenue loss for its North-South and East-West Lines in 4QFY16. This is in addition to the S$4m-5m fare revenue loss from the 1.9% fare cut.
- We believe these fare revenue losses are likely to flow through to its bottomline.
■ Rising cost pressure from the lifted rail maintenance regime
- Apart from the subdued fare outlook, we expect the group’s rail profitability to be further squeezed by the rising MRE related to its aging rail network. SMRT’s rail MRE of S$74m in 3QFY16 (2QFY16: S$71m) was equivalent to 43% of its rail fare revenue (2QFY16: 41%).
- Management guided that the MRE will continue to increase to c.50% of rail fare revenue by 4QFY16. The MRE is likely to stay elevated throughout FY17, in our view.
■ Maintain Reduce on SMRT
- We raise our EPS forecast by 25% for FY16F to reflect the stellar 3QFY16 results, and by 10% for FY17F to reflect the improving bus profit from the lower energy cost.
- Our FY17 DCF-based target price has been nudged up to S$1.40.
- We maintain our Reduce call on SMRT.
- Potential earnings disappointment is a key de-rating catalyst.
Roy CHEN
CIMB Securities
|
William TNG CFA
CIMB Securities
|
http://research.itradecimb.com/
2016-01-27
CIMB Securities
SGX Stock
Analyst Report
1.40
Up
1.37
