Thursday, August 1, 2013

SMRT: Still a bumpy ride ahead (DBSV)

SMRT:
FULLY VALUED S$1.43; Bloomberg: MRT SP
Still a bumpy ride ahead;
Price Target : 12-month S$ 1.20

•1QFY14 results were below expectations, net profit tumbled 55% y-o-y to S$16.3m
•Soaring costs remained the main culprit, and is expected to continue to rise
•Change in operating model and fare review is key to profitability, but timing of government move is uncertain
•Maintain Fully Valued and S$1.20 TP


Highlights
1QFY14 still on downtrend. 1Q net profit continued to slump, tumbling 55% to S$16.3m although revenues grew 3.5% to S$284.8m. The weaker earnings was due to higher operating expenses (+11%): staff costs (+23% to S$112.7m), depreciation (+10.4%) and repairs & maintenance (+4.4%).

Fare-related business remains weak. The business reported S$5.2m net loss (vs 1Q13 EBIT: S$19.8m) due to reduced profitability for the MRT and larger bus losses. MRT achieved only S$2.9m EBIT compared to S$25.3m a year ago. This was due to higher staff costs, depreciation and other opex. The EBIT loss was partly offset by a higher EBIT for rental (S$17.7m, +9%), advertising (S$4.8m, +4.5%) and taxis (S$2.3m, +46%).

Our View
Change to operating model is key, but timing is an issue. It seems a change in the operating model for rail and buses is needed for these segments to witness a turnaround in financials. We understand discussions with the authorities on the rail financing framework and the bus operating model are underway, but this might take time.

There is still downside risk to earnings. We remain cautious on SMRT given its weak operating outlook and rising operating expenses. Operating costs should remain high, which places downward pressure on earnings. Dividend yield is also expected to remain unattractive at just 1.7% given its capex investment plans and current net gearing of 64% (4Q13: 8%).

Recommendation
Maintain FV, TP S$1.20. Given challenging operating conditions and weak earnings outlook, we maintain our Fully Valued rating and S$1.20 TP. Our TP is derived from the average of our DCF valuation (WACC: 5.8%, t=1%) and PE (16x FY14F PE) metrics.


Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 31/07/13

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