Singapore Land Transport - Maybank Kim Eng Research 2016-07-21: Our thoughts on Temasek's privatisation offer for SMRT

Singapore Land Transport - Maybank Kim Eng Research 2016-07-21: Our thoughts on Temasek's privatisation offer for SMRT Singapore Land Transport COMFORTDELGRO CORPORATION LTD C52.SI  SMRT CORPORATION LTD S53.SI 

Singapore Land Transport - Our thoughts on Temasek's privatisation offer for SMRT


SMRT shareholders should ACCEPT THE OFFER

  • We highlighted an unfavourable deal for SMRT shareholders under the new rail financing framework. For details, see report dated 18 July 2016
  • As Temasek's privatization offer of SGD1.68 represents a significant 23.5% premium to our fair value of SGD1.36, we recommend that shareholders ACCEPT THE OFFER. 
  • Under the Scheme of Arrangement for the shares, 75% of the shares not owned by Temasek must vote in favour for the deal to go through. Temasek will not revise the offer price.


Negative implications for ComfortDelGro

  • We see negative implications for ComfortDelGro (HOLD, TP SGD2.80) after SMRT is privatized. 
  • While commercial considerations remain important, a privately-held SMRT could take a longer term view when investing. This implies that it could sacrifice near-term profitability to enhance its capabilities. Therefore, for ComfortDelGro to compete effectively, more investments to enhance its capabilities and workforce may be needed. This could lead to higher operating expenses and could weigh on near-term profits. 
  • Furthermore, SMRT could bid more aggressively to drive scale in subsequent tenders to operate other rail lines.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-21
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.80 Same 2.80
ACCEPT OFFER Maintain SELL 1.36 Same 1.36


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