SMRT – Phillip

1st Quarter FY2010 Results

Flat year-on-year revenue. The Group announced 1QFY10 revenue of $215.8 million, a decrease of $0.1 million compared to the same period last year showing signs that the fare reduction package has affected revenue streams from its train and bus segments. The Group also attributes the flat revenue to a smaller average hiredout fleet for taxis. Net profit showed a rise of 19.6% from $40.6 million in 1QFY09 to $48.2 million 1QFY10. There was an approximately $7.5 million rise in other operating income to $13.1 million, which seems like a one-off and when stripped, bottomline figures are flattish as well.

The MRT segment saw revenue at $115.6 million, a decrease of $0.03 million from 1QFY09. The growth in average daily ridership did partially offset the lower average fare for 1QFY10. Operating profit for MRT did increase by 8.0% to $36.7 million due mainly to higher operating income that was partially offset by higher repairs and maintenance as well as electricity costs. LRT revenue fell marginally to $2.2 million with an operating profit of $0.04 million.

Bus operations revenue for 1QFY10 fell 3.7% to $49.9 million due to lower average fares coupled with lower average daily ridership. It did however post an operating profit of $1.2 million due mainly to lower diesel cost, which is offset against lower revenue and higher repairs and maintenance expenses.

Taxi operations, due to a smaller average hired-out fleet, saw a decline in revenue by $1.2 million or 6.6% to $17.7 million in 1QFY10 compared to $18.9 million in the same period last year. A smaller average holding fleet allowed them to book an operating profit of $1.1 million due to lower other operating expenses.

Rental segment saw a rise in revenue by $1.6 million or 11.9% to $15.5 million compared to $13.8 million in 1QFY09. Operating profit increased by $1.4 million or 12.9% to $12.5 million. Increase in revenue and operating profit for the rental segment is mainly due to a better yield as well as increased rental space following the redevelopment of commercial spaces at various MRT stations.

Advertising revenue fell by $0.3 milion or 4.5% to $5.4 million attributable to the weak economic backdrop. Operating profit thus fell by $0.4 million to $3.5 million.

Engineering and Other Services saw higher revenues of $10.6 million, which is $1.7 million above 1QFY09’s revenue. The increase was attributable to increased consultancy revenue and higher fees from overseas projects. Operating profit was however $0.6 million lower due mainly to lower taxi accident repairs.

Downgrade to HOLD with an adjusted fair value estimate of $1.89. It is evident that the fare reduction package introduced in April this year, which will last for the next 15 months from the 1st of April, has shown signs that it has taken its toll on SMRT’s train and bus revenues despite rising average daily ridership for the train segment. SMRT is expected to be facing headwinds in the coming periods due to the fare reduction package affecting train and bus revenue segments as well as the uncertain economic backdrop already affecting taxi operations and advertising revenues. We have adjusted some of our operating expenses as well as revenue segments to arrive at a slightly lower fair value estimate of S$1.89 (previously S$1.92). As this represents only an upside potential of 9.88% from the last traded price of $1.72, we are downgrading SMRT to a HOLD call with a fair value estimate of S$1.89.

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