SMRT – Phillip

Within Expectations

2Q Results. SMRT reported 2Q revenue of S$197.3m (+5.2% yoy) and net profit of S$39.5m (+25.3% yoy). The growth in revenue was due to higher ridership, improved taxi average hired-out fleet and strong contributions from rental and advertising.

In view of the excellent performance, SMRT announced an interim ordinary dividend of S$26.5m or 1.75 cents per share.

Performances by various businesses. SMRT registered growth in fare revenues from MRT (+5.7% yoy) and LRT (+4.4% yoy) operations while the buses operation posted minor growth in revenue (+0.7% yoy). The increase in average daily ridership resulted in the growth in revenues from the operations.

Moreover, for non-fare operations, there was double digit revenue growth from taxis (+12.3% yoy), rental (+12.8% yoy) and advertising (+24.6% yoy). The strong performances from taxis was due to the higher average hired-out rate at 90.2 percent in 2Q. Meanwhile, the increase in rental space and better yield caused the growth in rental. Furthermore, the increase in advertising on trains and stations resulted in better advertising sales.

However, revenue from engineering and other services declined (-11.7% yoy) due to the deconsolidation of Transit Link.

FY 08 Outlook. Management remains optimistic about its business in 2008. It expects growth in revenues from trains and bus operations as well as taxis, rental and advertising. Nevertheless, other operating income is likely to be lower in FY 08 as there were contributions from expired farecards in FY 07.

Maintain HOLD recommendation, target price raised from S$1.32 to S$1.70. SMRT has posted financial results within our expectations. Moreover, it continues to register increases in revenues and profits. This is a defensive stock for investors who would like to hold for payment of dividends. Based on our discounted cash flow model, the fair value is raised to S$1.80 to reflect the progressive growth in cash flow from operations.

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