SMRT – CIMB

Ridership rises

• Maintain Outperform. 2QFY10 net profit of S$52.8m (+24.1% yoy) was 15% above our and market consensus, accounting for 31% of our full-year estimates. The outperformance was due to lower fuel costs and a fall in other opex. Our earnings estimates are unchanged as we expect operating expenses be higher in 2H10. Maintain Outperform with our DCF-derived target price unchanged at S$2.09 (WACC: 8.6%, terminal growth: 2%). We like SMRT as a beneficiary of higher tourist arrivals in Singapore. Rerating catalysts could include further overseas acquisitions and growth from new MRT lines.

• Above expectations. Despite fare reduction, revenue grew 1.1% to S$229.4m thanks to contributions from the new Circle Line, higher rental revenue and higher overseas revenue. Operating expenses fell on lower energy costs (-16.9% yoy) and other expenses (-8.8% yoy). Within energy, diesel costs fell by 44% yoy to S$8.5m, while electricity costs rose by 113% yoy to S$16m due to increased train runs and the operation of Circle Line. An interim dividend of 1.75/share was declared.

• Operational review. Train revenue rose marginally thanks to higher average ridership and contributions from the Circle Line. However bus revenue fell on lower average fare and average daily ridership while taxi revenue fell on smaller average hired-out fleet. Rental growth (+13% yoy) was boosted by improved yield and increased rental space.

• Operating expenses to be higher in 2H10. 3Q09’s fare-based revenues are expected to be lower yoy on lower fares and higher transfer rebates. However SMRT is expecting higher rental revenue and higher fees from overseas projects. Outlook for taxis has improved after trimming the fleet by 12% yoy. 2H10 operating expenses are likely to be higher hoh due to more scheduled repairs and maintenance, and costs related to the opening of remaining Circle Line stations.

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