SMRT Corporation Ltd different segment business, chart

SMRT Corporation can be divided into 8 segments:
1. Train operations, 
2. Light Rail Transit (LRT) operations
3. Bus operations
4. Taxi operations, 
5. Rental
6. Advertising
7. Engineering Services
8. Others

1 & 2 are Rail business
3 to 8 are Non-Rail business

27 jun16

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SMRT Corporation impressive results beat expectations

2QFY15 earnings above expectations once again
SMRT reported an impressive set of 2QFY15 results that beat our expectations. Its 2QFY15 PATMI jumped 75.5% YoY to S$25.3m on the back of a 6.0% increase in its revenue to S$314.0m. The above-expectations performance for its first two quarters led to a 5.2% increase in SMRT’s 1HFY15 revenue to S$611.1m and a 54.9% increase in its PATMI to S$47.6m. The latter formed 57.1% of our FY15 forecast and 58.9% of Bloomberg’s consensus. SMRT’s Fare Business turned profitable from operating losses of S$6.8m and S$1.1m in 2QFY14 and 1QFY15 respectively, to record an operating profit of S$5.5m in 2QFY15. The significant improvement in its Fare Business was mainly due to higher ridership and average fares as well as productivity gains and disciplined cost management. Non-Fare Business’ 2QFY15 operating profit increased 4.4% YoY to S$27.2 mainly driven by taxi, rental and advertising.

Expects current level of earnings to sustain
We think the current level of earnings is sustainable if management continues to maintain profitability in its Fare Business going forward as we believe current ridership and average fares will sustain. We expect management to continue to focus on cost management mainly through efficient scheduling of drivers. With the recent oil price slide, we expect further improvements to SMRT’s Bus and Rail operating margins since electricity and diesel costs constitute an average of 16% of total expenses. Furthermore, with improved occupancy rate at

SMRT Corporation 4QFY14 earnings exceeded our expectations

SMRT reported a 2.9% YoY growth in its 4QFY14 revenue to S$289.5m. PATMI of S$16.9m was a reversal from a net loss of S$11.9m in 4QFY13. Even if we exclude a one-off S$17.3m impairment of interest in an associate in 4QFY13, SMRT‟s 4QFY14 PATMI would still have grown by 215.2%. For FY14, revenue climbed 4.0% to S$1,163.9m, in line with our forecast of S$1,166.7m.

PATMI dipped 25.7% to S$61.9m but still exceeded our expectations by 11.9% due largely to higher-than-expected „other operating income‟. SMRT raked in an operating loss of S$25.0m in FY14 from its Fare business (FY13: operating profit of S$32.3m) but this was mitigated by a 12.4% growth in operating profit from its Non-Fare business to S$106.4m.

A final DPS of 1.2 S cents was declared, bringing FY14 dividends to 2.2 S cents/share. This was lower than the 2.5 S cents DPS paid out in FY13 but ahead of our 1.8 S cents/share forecast. Looking ahead, SMRT believes conditions for its Fare business will remain challenging, but expects impending changes to the rail financing and bus operating model which will address the sustainability of its Fare business in Singapore. We will seek more clarity on this during the analyst briefing, as we believe this issue has been the main reason driving its 20% share price surge over the past week.

Our Sell rating and S$1.06 fair value estimate comes under review.

SMRT fares to increase by 3% from 6 April

Highlights
Yet to turnaround. 3QFY14 net profit fell 44% y-o-y to S$14.2m, and fell marginally q-o-q. Revenue inched up to S$293m, led by higher ridership and rental income but was outstripped by stillelevated costs: staff (+21%), depreciation (+10%), and other operating expenses (+7%). EBIT margin fell by 4.5ppt y-o-y to 6.9%, but was similar to 2QFY14. 9MFY14 profit is only 62% of our full year estimate.

Rental and advertising income mitigated losses in fare revenue segments. The Group’s fare revenue segments (trains, bus) remained lackluster with S$9m EBIT loss, larger than the S$6.5m loss in the previous quarter and a reversal from S$7.4m profit in the year ago quarter. Group EBIT continued to be supported by non-fare revenue segments such as rental and advertising which combined EBIT grew 14% y-o-y to S$25.4m.

Our View
Raised fares but costs remain a challenge. The PTC recently approved a

Earnings Weakness Not Priced In for SMRT

Despite a 15% decline year to date, we believe that the stock of SMRT had not fully reflected the weak profits in the coming year. With structurally higher leverage and poor dividend yield support, we argue that SMRT should de-rate structurally from its historical levels. The stock of SMRT currently trades at 25X FY14E P/E and yields merely 1.7%. While we expect rental income at the Sports Hub to lead earnings recovery from FY15E, our forecast remains significantly below that achieved in prior years. Maintain Sell with TP of SGD1.00.

We have 3 key concerns on the stock:

1) Structurally higher leverage. We forecast structurally higher financial leverage as SMRT raises more debt to finance its CAPEX. We expect SMRT to take on another SGD150mn of debt in the year and end FY14E with a net gearing of 0.8X. As a result of this structural shift in capital structure, the stock’s financial risk profile will be higher in the future.

2) Fare revenue and OPEX mismatch. Profits at SMRT’s core fare based business had been on a steady decline as operating expenditure (OPEX) outpaced revenue growth by 5-7% over the past 3 years. As a result of this persistent mismatch between fare revenue and OPEX, we expect earnings for the fare based business to remain poor for the next 3 years.

3) Lack of CAPEX visibility.

SMRT Corporation: Rhetoric unchanged

● Staff and R&M costs take a bigger bite
● Weakest quarter (4Q13) to come
● But negativity already priced in

3Q13 results disappoint
SMRT’s 3Q13 results disappointed as higher operating expenses hit harder than we had anticipated. Although revenue growth came within our expectations (+5.0% YoY to S$281.7m) on higher ridership figures, a spike in staff and related costs (+18.2% YoY; +5.6% QoQ to S$98.5m) and repair and maintenance expenses (+29.1%; +3.3% QoQ to S$26.9m) eroded operating profit margin by 5.9 ppt from a year ago (3 ppt from 2Q13) to 11.4%. Consequently, net profit fell 31.2% YoY (-23.6% QoQ) to S$25.5m.

4Q13: the weakest quarter for FY13
With SMRT still seeking to add at least 350 more staff by end FY13 – and repairs and maintenance costs will continue to grow as emphasis on service standards and reliability remains paramount – we are likely to see operating expenses increase further to end the year with further compression on operating and net profit margins for 4Q13.

Rhetoric unchanged
Management continues to caution over weaker profitability for FY13, and we agree wholeheartedly with this assessment. SMRT will also likely experience its worse

SMRT final dividend cut to 5.7 cts

Target price: SGD1.38


FY2012 results in line; dividend cut. SMRT reported core FY2012 profit of SGD141.5m, in line with expectations and representing a 12% dip YoY. Core earnings exclude one-off impairment of goodwill related to their bus business1 recognised in 4Q12. Final dividend of S 5.7 cts was declared, bringing total DPS for FY12 to S 7.45 cts (80% of core EPS), a drop of 12% vs FY11. We maintain our SELL call on the stock, with the uncertain outlook on several repair, maintenance and capexsharing issues weighing in with increasing staff and energy cost pressures.

Transport on decline, rental and ads pick-up. SMRT's FY12 train and bus operating profits reported significant declines YoY at

SMRT Corporation business as usual

SMRT Corporation - fair value of S$2.04



Business as usual but focus on Ministerial Statement
●Beleaguered SMRT CEO resigns
●No interim impact; business as usual
●Ministerial Statement will be key focus

SMRT CEO resigns immediately. SMRT announced late Friday evening that CEO Saw Phaik Hwa has decided to step down with immediate effect to

SMRT strong dividend yield

fair value estimate of S$2.04

Taxi fare revisions similar to ComfortDelgro. SMRT announced yesterday that it would be revising its taxi fares to match the recent increase by ComfortDelgro. It cited the need to "keep pace" with its competitor's increase in order to provide its cab drivers with the ability to cope with higher fuel costs and rising cost of living. Some of its fare revisions included raising flag-down rates, increases in meter fares and extension of city area and peak period surcharges. The new fares will be implemented next Tuesday (20 Dec 2011).

Cannibalization effect by trains and buses likely to be minimal. A significant drop-off in commuters utilizing taxis resulting from the new fare structure is highly unlikely. While there may be some initial resistance by commuters, we see a reversion to normality once they become more accustomed to it. Previous fare revisions in 2006 and 2007 also met with largely negative reactions and threats of boycotts but given the increasing need for public transport in Singapore and elevating costs of car ownership, these reactions will simmer down eventually.

No impact on FY12 earnings. Given that the fare revision will only affect travelling costs for passengers and cab drivers' income, and the fact that SMRT has not yet announced any changes to its taxi hire-out/lease-out rates, there will be no material impact on SMRT's earnings going forward. Barring any further announcements from the company, we are leaving our FY12 earnings projections unchanged.

Continued train and bus ridership growth; new advertising initiatives. SMRT is continuing to experience YoY growth in its train and bus ridership figures. For Oct, it reported a 7.6% YoY and 2.4% YoY growth respectively for its train and bus operations. In addition, SMRT also recently embarked on a new QR code reader shopping initiative with Cold Storage supermarkets to allow commuters to purchase food for the upcoming Christmas festivities on-the-go.

Upgrade to BUY. Since our last report issued on 31 Oct, SMRT's share price has come off slightly together with the broad market's decline; but we continue to like the counter for its dividend yield (4.3% FY12F vs. 3.7% FY12F for STI). In addition, with fuel costs hedges and growing Circle Line ridership, we see opportunities for SMRT's operating margins to improve. Based on valuation grounds, we are upgrading our call on SMRT to BUY with an unchanged fair value estimate of S$2.04.

Cost pressures continue to be a dampener on SMRT

DMG - TP S$1.73

3Q11 adjusted net profit of RMB56m (+5% YoY; -5% QoQ) was below our RMB62m projection as lower-than-expected animal food and mouth (FMD) vaccines sales of RMB18m was partially mitigated by powdered drug growth to RMB128m (our estimates: RMB50m; RMB117m respectively). Overall 3Q11 revenue increased by 30% to RMB209m although GPM extended its slide to 70% (2Q11: 71%; 3Q10: 76%) on new taxes and weaker margins for vaccines. We revise our FY11 earnings estimate down by 11% to RMB213m but maintain our FY12 figures. Despite FMD vaccines disappointment, we continue to like CAL for its exposure to upstream food production in China, as well as its resilient earnings and cash flow generative characteristic. We rollforward our target multiple and maintain our BUY recommendation at a new TP of S$0.35 (old: S$0.33) pegged to 5x FY12 EV/EBITDA (old: blended FY11/FY12).

20% powdered drug revenue growth. Powdered drug grew by 20% to RMB128m as high meat prices continued to stimulate demand for food production. Powdered drug GPM was stable at 77% as better product margins helped to offset impact from the introduction of two new taxes – City Construction and Education Supplementary Tax, which amounted to RMB8m for 9M11.

56% biological drug increase. Biological drug increased to RMB74m (2Q10: RMB47m) as FMD vaccines made its maiden contribution at RMB18m. Biological drug GPM however dipped by 19ppt to 57% due to lower ASP for blue ear vaccines in new markets and low utilisation for FMD production facilities, in addition to the two new taxes. Till date, CAL has obtained indicative orders from 17 provinces/municipals of RMB25m and RMB50m for swine fever and blue ear vaccines. For FMD, it has obtained RMB10m indicative orders from three provinces and distribution rights to seven provinces/municipals.

AM Fraser

SMRT - Q2 profit plunges 25.6% Rising energy prices continued to take their toll on SMRT Corp, with its net profit falling 25.6% year on year to $34.1mil for the 2Q ended Sept 30. Revenue for the three months climbed $15.1mil or 6.1% to $261.1mil. This was due mainly to higher MRT and bus ridership, contribution from Circle Line, higher taxi rental revenue, increase in external fleet maintenance revenue and higher rental and advertising revenue, partially offset by lower average fare for MRT and bus. SMRT declared an interim dividend of 1.75 cents per share.


CIMB - Target price S$1.77.

SMRT Corporation continued to battle stubbornly high costs in 2Q12. Elevated energy and staff costs resulted in a 7% pt drop in EBITDA margin. With FY12 shaping out to be a year of earnings contraction, we see no reason to be excited about the stock. Maintain Underperform.


PhillipCapital - Target Price S$1.68

- Poor first half results points to a weak FY12E
- Potential impairment charge could trigger further earnings cut
- Long term outlook of fare revision mechanism unclear
- Revised earnings estimates down by 6% for FY12E
- Downgrade to Sell with revised target price of S$1.68