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• 2Q net profit of S$52.8m slightly ahead (+24% yoy) on lower opex and higher other operating income
• Electricity locked in till Sep 2010, giving more certainty to costs, in our view
• 49% stake in Shenzhen Zona for RMB320m; Zona’s profit expect to double by 2010/11
• Upgrade to Buy; TP: S$2.00 (24% upside)

2Q slightly ahead. Headline net profit of S$52.8m (+24% yo-y, +6% q-o-q) was slightly ahead of our expectations on higher other operating income (S$8.5m, +25.9% yoy) and lower operating expenses (S$174.7m, -3.6% yoy). Topline inched up marginally to S$229.4m (+1.1% yoy) on higher MRT revenues, rental and overseas consultancy fees, but offset by the fare reduction. An interim dividend of 1.75 Scents was declared (similar to 1H09).

Electricity contracts locked in till Sep’10. Management has locked in its electricity contract rates at 11% higher than the previous one which expired in Sep’09. While this would increase its operating costs in 2H vis-à-vis 1H, we believe it gives certainty to its operating results given the current environment.

Fruition of 49% stake in Shenzhen Zona. The agreement has just been signed on 30 Oct for a 49% stake (RMB320m). Historical PAT (2008) of Zona was RMB24.1m, but management guided that profit would more than double by 2010/11 on lower interest costs and a larger vehicle fleet expected. We estimate it would account for c.3% of earnings by then.

Upgrade Buy, TP: S$2.00. We see positive investment attributes in this defensive counter based on its: (i) stable recurring earnings on firm ridership; (ii) foray overseas and the potential in its associate, which management appears to be very optimistic about; and, (iii) that the counter has been overlooked recently over higher beta plays. Our TP is based on an average of 15x FY10/11F PER and DCF (WACC 7.2%).

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