SG Land Transport - RHB Invest 2016-09-30: SMRT ~ Going, going gone! Buy ComfortDelGro!

SG Land Transport - RHB Invest 2016-09-30: SMRT ~ Going, going gone! Buy ComfortDelGro! COMFORTDELGRO CORPORATION LTD C52.SI SBS TRANSIT LTD S61.SI

SG Land Transport - SMRT ~ Going, going gone! Buy ComfortDelGro!

  • Shareholders of SMRT Corporation (MRT SP, NEUTRAL, TP: SGD 1.68) on Thursday voted in favour of 
    1. the implementation of New Rail Financing Framework (NRFF), and 
    2. Temasek’s plan to take the transport operator private. 
  • The proposal now awaits the High Court's approval in about two weeks' time. Shareholders will receive SGD1.68 in cash per share within seven business days from the date the transaction becomes complete in all respects. News report suggests that the payout date could be around 1 Nov. The stock will be delisted after the payout.
  • We maintain that SMRT’s train business would struggle to make strong profits in the near term amidst rising cost of operations. 
  • SMRT will have limited headroom to grow revenue as fares continue to be determined by Public Transport Council (PTC). PTC uses a formula, which is pegged to changes in the Core Consumer Price Index, the Wage Index and the Energy Index over the preceding year, to decide the public transport fares. The upcoming public transport fare review could lead to as much as 5.7% cut in train fares from April 2017 (News).
  • With SMRT to be delisted soon, ComfortDelGro (CD SP, BUY, TP: SGD 3.19) and SBS Transit (SBUS SP, Not Rated) are the only public transport companies to remain listed on the Singapore Exchange. 
  • We continue to like ComfortDelGro for its well-diversified global business, which has the potential to generate strong operating cash flow and deliver steady earnings growth despite a weak economic environment in Singapore, thanks to its profitable public transport businesses in the UK and Australia. 
  • ComfortDelGro’s strong net cash balance and lower future capex needs under the Government Contracting Model for Singapore bus operations should enable management to undertake earnings accretive acquisitions in the overseas market. We believe there is also potential for higher dividend payout in the near term and we estimate the stock to offer dividend yield of 4-5% during 2017-18.

Shekhar Jaiswal RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-30
RHB Invest SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998
BUY Maintain BUY 3.19 Up 3.180