Monday, November 25, 2013

SMRT :Talking reforms, costs and long-term strategy (DB)

SMRT Corporation -
Management meeting: Talking reforms, costs and long-term strategy
Generally positive feedback from management meeting
We recently met SMRT’s CEO Mr Desmond Kuek and CFO Miss Catherine Lee. Apart from discussion on the business outlook, what we also found interesting was management’s comment that public perception of the company (as tracked on their Facebook page) had improved in recent months, with similarly encouraging trends in staff morale.

Key highlights of our discussion below.

Confidence in reforms stems from improved relationship with authorities
Management pointed to a significantly more collaborative relationship with the regulator (with greater involvement from policy makers) now, compared to 5 years ago. The CEO cited accelerated timelines for the asset renewal programme as reflective of the new relationship dynamics. Within this context, optimism was expressed that the bus segment would migrate to a more financially sustainable operating model before 2016 (a view echoed by CD management during DB-hosted group investor meeting earlier this week).

Management was of the view that implementation would be gradual, with selected parcels of bus routes being tendered over time. In lieu of uncertainties around rail asset management, management believes any change in operating model for this segment could take place at a later stage (in-line with DB view).

Near-term costs to remain high, but unlikely to escalate further
Management stated opex would remain at current levels (but unlikely escalate further) within the near-term, given headcount requirements for the planned fleet expansion. While there is scope for slight moderation in repairs and maintenance costs (given newer trains), related savings will likely be offset by the impact of a larger fleet. Management hinted that near-term capex intensity could remain high, given the need for fleet (bus and taxi) replacement and refurbishment of mid life cycle trains.

There was no further clarity around capex allocation for the ongoing asset renewal programme. For reference, we currently forecast margin recovery in FY15, supported by moderating rate of opex increase.

Longer-term growth strategy – three key areas identified
Management highlighted SMRT’s involvement in the Sports Hub (opening 2014) as a platform from which similar opportunities could be pursued going forward. There were also plans to deepen and expand the company’s rail engineering capabilities, subject to market opportunities.

Finally, management stated they were starting to think about overseas expansion in a “more deliberate way”. Based on our interpretation of management’s comments, we think any overseas venture could potentially be in the area of rail operations and maintenance and/or retail management.

No details around timeline were offered, but we believe overseas expansion could feature more prominently in SMRT’s growth plan within the next 1-2 years.

Source/Extract/Excerpts/来源/转贴/摘录: DB-Research,
Publish date: 21/11/13

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