SMRT CORPORATION LTD
S53.SI SMRT(MRT SP) Positive earnings surprise
Upgrade to HOLD on EPS upgrades
- We raise FY3/16-18E EPS by 42%/30%/30% to reflect better-than-expected profitability and upgrade SMRT to HOLD from SELL.
- Our TP is lifted to SGD1.40 (from SGD1.10), based on an unchanged 20x FY3/17E EPS (from FY3/16E).
No updates on bus or rail transition.
- Earnings beat on better-than-expected profitability 3QFY3/16 net income of SGD36.9m beat our expectations with 9M16 at 99% of full-year estimates.
- We were surprised by the strong MRT EBIT of SGD9.7m, which was achieved against a backdrop of rising labour and maintenance costs.
- Bus operations also reversed losses to record EBIT of SGD3.4m and its taxi business demonstrated strong cost control to record an uptick in profits to SGD4.8m. We note that the group received higher grants in the period, which may have added to the positive variance.
- Profitability at its associated company, Shenzhen Zona, was also strong with SGD3.6m of contributions for 9M16.
Expect some rail headwinds in the year ahead
- Despite the earnings beat, we see some headwinds for its rail business in the year ahead.
- Benefits from lower energy bills will be eroded by a 1.9% fare cut that took place last month. Furthermore, the recent opening of Downtown Line Stage 2, operated by SBS Transit (Not Rated), should also cannibalise some traffic from its network. These could lead to a marginal loss for rail in FY3/17.
Bus and rail transitions remain under discussion
- The company did not provide any updates on its bus or rail transitions. However, we expect better clarity on the bus contracting terms in the coming months as the new operating model will take place from September this year.
- Timing of rail transition remains hazy.
Derrick Heng CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-01-26
Maybank Kim Eng
SGX Stock
Analyst Report
1.40
Up
1.10
