SBS TRANSIT LTD (SGX:S61)
SBS Transit - A Speed Bump
- SBS Transit's 1Q21 net profit of S$23.3m (-14% q-o-q, +109% y-o-y) was in line with expectations. Weaker topline was offset by stronger cost control.
- Ridership recovery year-to-date was slower than expected; we lower our ridership assumptions in view of recent tightening of COVID-19-related restrictions.
- Rail financing reforms remains a key potential catalyst for SBS Transit. Reiterate ADD with a lower target price of S$3.50, still pegged to 13.2x FY22F P/E.
SBS Transit reported solid 1Q21 results
- SBS Transit (SGX:S61)’s 1Q21 net profit came in at S$23.3m (-14% q-o-q, +109% y-o-y), in line, at 28.8% of our previous FY21F forecast. Dragged by lower rail ridership and advertising revenue, topline (-6.5% y-o-y) was weaker than expected, but this was offset by stronger-than-expected cost control.
- Government grants continued to be the main help — SBS Transit received S$18.6m worth of reliefs during the quarter.
Bumpy road to recovery
- While rail ridership continued to show an improving trend year-to-date, the pace of recovery, thus far, has been below expectations. In view of recent tightening of COVID-19-related restrictions in Singapore, we now only expect rail ridership to recover to 85% of pre- COVID-19 levels by end-2021F.
- From 8 to 30 May 2021, additional social distancing measures were put in place, essentially bringing Singapore back to Phase 2 of reopening. Gathering limits were reduced, with permissible group size reduced from eight to five. Proportion of employees returning to the workplace was also reduced to 50% (from 75% previously).
DTL financing framework reform remains a potential catalyst
- The Downtown Line (DTL) financing framework review remains a key potential catalyst for SBS Transit this year, in our view. We see 26%-30% upside to SBUS’s FY21-23F net profit forecasts should the fixed license fee be waived.
- DTL operations have consistently been loss-making, and the losses further widened in 2020 due to COVID-19. As COVID-19 is likely to bring structural changes to the flexibility of work arrangements, we believe there is an urgent need for the government to review the rail financing framework.
- Without government intervention, DTL would remain loss-making for longer, and we believe it would be difficult for operators to maintain high reliability of rail line operations while sustaining continuous losses.
Reiterate ADD with a lower target price of S$3.50
- Reiterate ADD on SBS Transit. We cut our FY21F-23F earnings per share forecast by 2.4%-5.3% as we lower our rail ridership recovery expectations. Our target price is lowered to S$3.50 accordingly, still pegged to 13.2x FY22F P/E (its 5-year historical average).
- See
- Potential 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
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Darren ONG
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-05-10
SGX Stock
Analyst Report
3.50
DOWN
3.600
