SBS Transit - CGS-CIMB Research 2021-02-09: On The Road To New Normal

SBS TRANSIT LTD (SGX:S61)

SBS Transit - On The Road To New Normal

SBS Transit reported a FY20 net profit of S$79.0m (-2.9% y-o-y), slightly above our expectations, supported by better-than-expected cost control.
Ridership recovery in FY21F could be supported by further relaxation in social-distancing measures, with a ramp-up of vaccine roll-out in Singapore.
Reiterate ADD and target price of S$3.60.

SBS Transit (SGX:S61) reported a 4Q20 net profit of S$27.1m (+40% q-o-q, +65% y-o-y), bringing its FY20 net profit to S$79.0m (-2.9% y-o-y), above expectations at 105% of our previous forecast due to better-than-expected cost control.

SBS Transit's earnings recovery was underpinned by:
1. continuous JSS support, and
2. continued rail ridership recovery.
As SBS Transit’s FY20 profitability was mainly supported by government grants, dividend payout ratio was lowered to 25% (FY19: 50%). Final dividend of 6.3 cents implies a yield of 2.1%.

With community cases of COVID-19 remaining low, and a further ramp-up of the vaccine roll-out in Singapore, we expect further relaxation in social-distancing measures in coming months, which could support public transport ridership recovery.
We forecast rail ridership to only recover to 90% of pre-COVID-19 levels by end-2021F, as we believe that in the new normal, there will be less commuting due to increased flexibility in work arrangements, which may not necessitate daily travels to work.
Despite significant tapering in JSS receivables to ~S$28m in FY21F (FY20: S$110m), we believe SBS Transit can still report a stronger net profit of S$80.8m (+2.3% y-o-y).

Parent company ComfortDelGro (SGX:C52) will be reporting its FY20 results on 15 Feb. See ComfortDelGro's announcements.
In line with SBS Transit’s sequential earnings improvement trend, we forecast ComfortDelGro to report a net profit of S$51m (+30% q-o-q, -33% y-o-y). However, as both of ComfortDelGro’s subsidiaries have lowered their FY20 dividend payout ratio (SBUS: 50% to 25%; VICOM (SGX:WJP): 120% to 90%), we believe ComfortDelGro’s dividends could be lowered as well.
Assuming a 50% dividend payout ratio (FY19: 80%), ComfortDelGro’s final dividend could come in at 1.6 cents, implying a dividend yield of 1.0%. See ComfortDelGro Dividend History; VICOM Dividend History; SBS Transit Dividend History.

Reiterate ADD for SBS Transit as we expect continued earnings improvement riding on ridership recovery and see potential for dividend policy to be revised higher in FY21F, given strong cash flow generation and strengthened balance sheet position (SBS Transit entered into net cash position of S$60m as of end-FY20).
We fine-tune our SBS Transit's FY21F-22F earnings forecast by 0.2%-0.3%; our target price remains unchanged at S$3.60 as we rollover our valuation to end-FY22F, pegged to SBS Transit’s 5-year historical average P/E of 13.2x.
See SBS Transit Share Price; SBS Transit Target Price; SBS Transit Analyst Reports; SBS Transit Dividend History; SBS Transit Announcements; SBS Transit Latest News.
Re-rating catalysts include potential rail financing framework reforms.
Downside risks include slower-than-expected rail ridership recovery.

ONG Khang Chuen CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-09

SGX Stock Analyst Report ADD MAINTAIN ADD 3.600 SAME 3.600