SMRT – CIMB

Boost from lower fuel costs

• Above expectations. 1QFY10 net profit of S$48.2m (+19.6% yoy) was above our and market consensus of S$40m. This was attributed to lower fuel costs, lower average staff costs from the jobs credit scheme and lower other opex, despite flat revenue of S$215.8m. The flat revenue was due mainly to fare rebates and lower taxi rental income from a reduced fleet size. No dividend was declared.

• Operating expenses. Operating expenses fell 1.3% yoy to S$171m on lower energy costs (-21% yoy) and other expenses (-4.7% yoy). Within energy, diesel costs fell 53% yoy to S$7.5m, while electricity costs rose 16% yoy to S$16m due to higher consumption, despite 25% lower rates from 1 Apr 09 under the latest energy contract. Staff cost rose 3.3% yoy on higher headcount (currently 6,474 staff, +13% yoy) for the opening of the Circle Line, salaries and CPF contributions.

• Operational review. Revenue from all transport-related segments fell; train and bus revenues fell on fare rebates despite posting ridership growth of 3% yoy and 0.05% respectively. Average fares per trip fell between 2-4%. However, group PAT margins improved to 22.3% from 18.7% a year ago, thanks to good cost management. LRT, bus and taxi operations all turned profitable, albeit just marginally. Rental growth (+12% yoy) was buoyed by increased 7% yoy of rental space while rental rates were steady.

• Challenging outlook. Train and bus revenues are expected to be lower on lower fares and higher transfer rebates. Advertising is also expected to slow down in tandem with the slower economy. Outlook for taxis has improved after trimming the fleet by 12% yoy. Overall operating costs should rise with the opening of the Circle Line, repair and maintenance and higher electricity expenses.

• Maintain Neutral. Despite the outperformance, we believe the remaining quarters will be challenging. We fine-tune our FY10-12 forecasts by -0.3 to 1.4%. We maintain our WACC of 9.6%, which translates to a slightly lower DCF-derived target price of S$1.76 (previously S$1.77), supported by a dividend yield of about 4.5%.

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