SMRT – DBS

3Q09 results in line

3Q net profit of $41.2m was within expectations. Ridership remained firm. The measures announced in the Singapore Budget will benefit SMRT, particularly job credits and cut in corporate tax rate. Maintain Buy, TP: S$1.82.

3Q net profit $41.2m (+8%) within expectations. Headline net profit of S$41.2m (+8% y-o-y) was within expectations. Revenue was up 8.4% y-o-y on higher train and bus ridership, rental and advertising revenue. Total operating expenses was up by 10%, largely on higher diesel and electricity costs (+35%), and higher staff costs (+4%). Electricity costs stood at $18.8m (+68%) due to higher electricity prices and consumption. Diesel costs were marginally higher at $11.4m (+2%), due to higher consumption offset by lower prices. Management indicated that its new electricity contract for the period from 1 Apr – 30 Sep 09 will be about 25% lower than current contract prices.

Savings from Budget 2009. The Group indicated that they are expected to derive costs savings from the measures announced, but was unable to share specific figures. Specifically, they will benefit from the cut in corporate tax rate, job credits and rebates in road taxes. They will be working with the PTC (Public Transport Council) to pass on savings from the Budget to commuters. They have a staff headcount of about 6,000. We estimate a job credit of c. $13m. As of 9M09, staff costs account for c. 31% and 39% of revenue and total operating costs respectively.

Maintain Buy, TP: S$1.82. We maintain our Buy recommendation. We believe ridership will remain stable despite the recession. Our TP is premised on 14x FY10F earnings, its mid-trading range. Its dividend yield of 5% should provide support, based on our assumption of 70% payout ratio.

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