SMRT – Lim and Tan

Just As Well

Net profit fell worse than expected 20.7% in Q1 ended Jun ’10 to $38.24 mln (or a more moderate 7% if year ago’s $7 mln exceptional item were excluded), as higher costs (largely related to the opening of Phase 3 of the Circle Line) could not be matched by rail ridership on the new line, which came to 145,000 average a day, vs management’s expectation of up to 200,000 a day.

What is also likely to dampen enthusiasm in the stock, which hit an all-time high of $2.33 (on Jul 5 ’10), is management’s warning of more of the same in the remaining quarters of the current fiscal year ending Mar ’11. Management does not expect profit for ye Mar ’11 to match the previous fiscal year’s $162.9 mln. The key reason again is the Circle Line. (Note: 5 stations on the Circle Line commenced operations on 28/5/09, followed by 11 on 17/4/10. The remaining 13 stations will open next year.)

We do not however expect this to affect the dividend payment, which was raised by 0.75 cent to 8.75 cents per share for ye Mar ’10, costing $128.97 mln and representing 79% payout, vs 72% for ye Mar ’09.

At $2.22, yield would be 3.9%, which should provide some cushion as the share price heads lower in the near term.

We recommend BUY on Weakness. At say $2, yield would be 4.4%.

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