SMRT - Maybank Kim Eng 2016-04-29: Range-bound in Absence of Transition

SMRT CORPORATION LTD S53.SI

SMRT (MRT SP) Range-bound in Absence of Transition

Core 4Q16 was below, with FY16 EPS at 77% of our FY16F.
As the market awaits details of an impending bus and rail transition, we expect the stock to stay range-bound.

Maintain HOLD and SGD1.40 TP, at 20x FY3/17 EPS, +1SD above long-term average.
Stock yields 2.7%.

Headline net income of SGD26.6m was inflated by a net property tax refund of SGD17.1m for rail.
4Q rail core losses were SGD8.5m, a reversal from 3Q16 profits of SGD8.2m. This could be traced to a steep increase in maintenance expenses of SGD87m at 53% of revenue, up from a quarterly average of SGD75m in the past year.
Management guides that such expenses will stay within 45-50% of revenue.
Buses also lost SGD1.6m. Both operations were buffeted by a 1.9% drop in fares and traffic cannibalisation from SBST’s newly-opened Downtown Line Stage 2.
We expect more rail losses in FY17, though bus could potentially return to profitability when its new operating model kicks in from Sep 2016.
Full-year DPS has been raised to 4.0 SGD cts from FY15’s 3.25 cts.

Management guides for non-rail CAPEX of SGD250m in FY17E.
SMRT continues to engage the regulator on the industry’s transition to a sustainable operating model, without furnishing further details.
We believe it will continue to burn cash on rail upgrades for at least another 2-3 years without a rail transition.
Responding to evolving taxi market Not much impact has been felt from new taxi entrants.
SMRT still had a healthy taxi hire-out rate of 96.5% in FY16. But in anticipation of competition, it recently rolled out Stride, a private-hire car business to provide alternatives to commuters and drivers.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-29

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