Tuesday, November 5, 2013

SMRT Corporation: Net profit falls 57% YoY (OCBC)

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

Net profit falls 57% YoY

As expected, SMRT's 2QFY14 revenue grew 5.3% YoY to S$296.3m on account of higher rail and bus ridership but operating profit fell 50.7% YoY to S$20.0m and net profit declined 57.1% YoY to S$14.3m. Higher staff costs and depreciation expenses were the main causes, and we expect them to continue weighing down SMRT’s financial performance for 2HFY14. Furthermore, the lack of a fare increase will ensure the continued gap between top-line growth and operating expenses for the time being. Nonetheless, despite this weak set of 2Q14 results, we do not expect SMRT’s share price to slide further as its woes have been well-documented over the past year. That said, SMRT remains an unattractive investment at this juncture as it remains susceptible to downside moves in response to bad press and/or service disruptions. Maintain HOLD with an unchanged fair value estimate of S$1.30.


Street expected drop in 2QFY14 results
SMRT's 2QFY14 revenue grew 5.3% YoY to S$296.3m on account of higher rail and bus ridership but operating profit fell 50.7% YoY to S$20.0m – as a result of higher staff costs and depreciation expenses – and net profit declined 57.1% YoY to S$14.3m. Despite the bottom-line drop-off, SMRT’s results were expected by the street as the group is in the midst of its first full-year of higher wages for its non-executives (e.g. bus drivers and ground staff) and is also absorbing the costs associated with its ongoing upgrading works.

Non-fare segments continue to support group
As fares have yet to adjust, operating profitability of the rail and bus segments continued to fall during the quarter. Rail operating profit fell by 97.6% YoY to only S$590K while bus operations extended its consecutive loss making quarters to twelve. Fortunately, the non-fare segments (i.e. rental, advertising et al) performed well (+14.7% YoY to S$26.5m) due to an increase in average lettable space from the new Woodlands Xchange and higher rental renewal rates.

Weakness to persist for remainder of year
The lack of a fare increase will ensure the continued gap between top-line growth and operating expenses for the time being, and we expect SMRT’s 2HFY14 operating profit to fall further. We also do not foresee a change in its operating model to new rail financing framework in FY14.

Not attractive but flaws accounted for already
Despite the weak set of 2QFY14 results, we do not expect SMRT’s share price to slide further as its woes have been well-documented over the past year. That said, SMRT remains an unattractive investment at this juncture as it remains susceptible to downside moves in response to bad press and/or service disruptions. Maintain HOLD with an unchanged fair value estimate of S$1.30.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 01/11/13

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