SMRT – CIMB
Fare revenue boosted by higher ridership
• In line; maintain Outperform. 3QFY10 net profit of S$39.2m (-4.8% yoy) was in line with market and our estimates (22% of our full-year number). Our estimates are unchanged. We expect operating expenses be higher in 4Q10 with the opening of Stages 1 & 2 of the Circle Line. As an operator of the Circle, East-West and North-South Lines of Singapore’s metro system, we believe SMRT will be a bigger beneficiary of higher tourist arrivals and population growth. We also believe its rental revenue will grow as it continues to refurbish its commercial space. We maintain our DCF-derived target price of S$2.26 (WACC: 9%, terminal growth: 2%) and see re-rating catalysts from possible further overseas acquisitions and growth from new MRT lines.
• Despite fare reductions, revenue grew 2.6% yoy to S$224.7m, thanks to contributions from the new Circle Line, higher rental revenue and higher overseas revenue. Staff costs rose 7.9% yoy because of the operation of the Circle Line, higher train runs and the recruitment of bus service leaders. Energy costs fell 10.2% yoy mainly due to lower diesel prices. SMRT also booked an impairment charge for goodwill for bus operations, amounting to S$6.6m as it expects long-term bus ridership to decline as commuters shift from buses to trains.
• Operational review. Train revenue rose 1.8% yoy, thanks to higher average ridership (+5.8% yoy) and contributions from Circle Line’s Stage 3 (the first stage to open). However, bus revenue fell on lower average fare. Taxi revenue rose 2.3% yoy thanks to higher hired-out rates. Rental growth (+16.2% yoy) was boosted by improved yields and increased rental space. As at Dec 09, 33 stations had been refurbished.
• Operating expenses to be higher in 4Q10. SMRT expects 4Q10 fare-based revenue to be higher yoy with the help of higher ridership, partially offset by lower fares and higher transfer rebates. It continues to forecast higher fees from overseas projects. 4Q10 operating expenses are expected to be higher yoy due to higher repair and maintenance costs, Circle-Line ramp-up costs and higher staff expenses.