Friday, October 11, 2013

SMRT Corporation: Laying low (OCBC)

SMRT Corporation:
Fair value S$1.30
add: 12m dividend forecast S$0.02
versus: Current price S$1.30

Laying low
• Free-ride scheme increasing ridership
• Weakness priced in by the street
• A stable share price for now?

Since end-Aug, SMRT’s share price has stabilised between a tight band of 1.29-1.30, which has helped to arrest its slide of 10% following its 1Q14 results.
The lower frequency of bad publicity has definitely aided the company, and we believe that the street has already factored in the majority of the negative expectations for FY14 as well as concerns over capex requirements. Assuming no asset impairments for its loss-making bus business, we should expect its share price to remain stable after the release of its 2Q14 results (likely to remain weak) at the end of the month. As such, we upgrade SMRT to HOLD on valuation grounds with an unchanged fair value estimate of S$1.30.

Rail ridership figures exceed 60m for first time
The free MRT ride scheme introduced on 24 Jun has seen rail ridership figures for Jul and Aug exceed 60m rides for the first time in SMRT’s history. The incentive to promote travel to 16 designated MRT stations in the city area before 8am has also aided in the alleviation of a congested rail system during the morning peak periods. In terms of financials, SMRT will bear the cost of free travel up to S$5m and the relevant authorities will compensate the company for the remainder.

More of the same for 2Q14 results
We expect SMRT’s upcoming 2Q14 results to be similar with 1Q14: slight revenue growth with higher operating expenses – namely staff, depreciation and repair/maintenance – causing operating profit to decline by double-digits YoY. On a segmental basis, bus operations will likely extend its streak of 11 consecutive quarters of losses (but we assume no asset impairments); rail profitability will be lower as well. The taxi, rental and advertising segments should stay positive and provide some consolation to SMRT.

Upgrade to HOLD on valuation grounds
SMRT is unlikely to see an uptick in its share price due to the lack of a fare increase (delay by the Fare Review Mechanism Committee) and pressures on operating expenses. However, since the end of Aug, SMRT’s share price has stabilised between a tight band of 1.29-1.30, which has helped to arrest its slide of 10% following its 1Q14 results. The lower frequency of bad publicity has definitely aided the company, and we believe that the street has already factored in the majority of the negative expectations for FY14 as well as concerns over capex requirements. As SMRT is currently trading close to our unchanged fair value estimate of S$1.30, we upgrade the counter to HOLD on valuation grounds ahead of its 2Q14 results release at the end of the month.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date:10/10/13

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