SMRT – UOBKH

Rail And Bus Ridership Growth A Boon

Rising rail and bus ridership will drive earnings. Anecdotal accounts indicate the mid-Dec 07 taxi fare hikes have led to increased ridership for both rail lines and buses. 81% of SMRT’s revenue and 76% of operating profit are derived from rail and bus operations. We have conservatively factored in a 3% rise in rail and bus ridership (over our earlier forecasts) and this will bring significant earnings enhancement. By 2010, the running of the Circle Line will bring forth a quantum leap in rail revenue.

Retail rental earnings continue to expand. Rental of retail space accounts for only a 5% revenue share, but a significant 18% operating profit share. As more retail space is added to Mass Rapid Transit stations and rented out, rental income will rise, accompanied by expanding operating margin. Taxi operations are now in the black. SMRT recorded a taxi operating profit of S$0.2m in 2QFY08, a reversal from 4QFY07’s S$0.4m loss. This was due to a higher hired-out rate of 90.2% in 2QFY08, vs only 79.2% in 4QFY07. We believe taxi operations can continue to record positive operating profits in the quarters ahead.

S$1.81 target price comprises two components: a) S$1.71 for existing operations, and b) S$0.10 for the Circle Line. Based on an 85% payout ratio, dividend yield is also attractive at 5%.

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