SMRT – DB

DB Access Asia Conference 2010 Highlights

Outlook – revenue growth across all divisions, albeit higher costs. Fare revenue likely to increase due to commencement of CCL stage 1 and 2 on 10 April, aided by higher MRT and bus ridership. However, mgmt expects higher staff cost from the increase in headcount and the impact of the cessation of job credits (received S$35m in jobs credit in FY10). We believe this could lead to higher start-up costs to operate CCL as more stages come on stream, and the lag in revenue could limit SMRT’s medium-term profitability.

Update on its overseas ventures. SMRT projects earnings for its 49% stake in Shenzhen Zona to at least more than double from RMB24.1m in CY2008 to RMB48.2m in CY2010 and CY2011. Mgmt expects Shenzhen Zona’s revenues to increase via ramp-up of its bus services to cater to the Bao An district in Shenzhen. Mgmt intends to use Shenzhen Zona as a platform to bid for additional bus and new rail contracts across China. SMRT is also looking to bid for rail contracts in the Gold Coast (Australia) and Honolulu (Hawaii).

New fare gates system could help to boost engineering revenue this year. Management is also working to move upstream by working on the provision of fare gates for DTL and overseas sales. This is being carried out by SMRT’s engineering division and acts as an additional revenue stream. SMRT believes that the global demand for fare gates system to be worth S $54bn and expects the revenue contribution from its fare gates system sales to be recognized in FY11E.

Timing of the award of Downtown Line (DTL). SMRT expects the award of DTL to be announced in a year, as the first stage of DTL commences in 2013. Mgmt expects the DTL tenure to be shorter, at 10-15 years vs the 30-year licences today, as LTA wants to encourage greater contestability. Maintain Hold.

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