SMRT – BT

Circle Line weighs heavy on SMRT

SHARES in SMRT Corp slipped 12 cents – or 5.4 per cent – in trading to close at $2.10 yesterday, after SMRT cautioned last week that it may not be able to maintain FY2010’s profitability for the current financial year ending March 31, 2011.

For the next 12 months, profitability is expected to be impacted by higher staff costs, volatility in energy prices and continuing losses for the Circle Line.

A DMG research report said: ‘We believe that Circle Line operations could remain a drag on earnings for FY11-12, considering that Stages 4-5 will only be completed in 2H11 (SMRT’s FY12), and may require a period of gestation to provide any possible accretion to SMRT’s bottom line.’

While ridership on the Circle Line has risen from an average daily ridership of 124,000 to nearly 145,000, the break-even target lies at about 200,000, analysts said.

The group has also recently switched from a transfer rebate system to a distance-based charging one, which may have a negative impact on fare revenue in the next 12 months.

For its fiscal first quarter ended June 30, SMRT registered a 20.7 per cent fall in net profit to $38.24 million, despite revenue rising 9 per cent to $235.34 million.

Analysts were upbeat on its retail business. ‘Advertising will benefit from the upcoming major events (such as Youth Olympic Games and Formula One) while rental will benefit from the addition of rental spaces from refurbished train stations and new Circle Line stations,’ Phillip Securities Research analyst Toh Wei Kiong wrote.

Citi Investment Research maintained a ‘sell’ on the stock, with a target price of $1.90 while Phillip maintained a ‘hold’, downgrading its fair value estimate from $2.36 to $2.18.

DMG called a ‘sell’ on SMRT with a target price of $2 and a ‘buy’ on ComfortDelGro (target price: $1.78), citing Comfort’s 15 x FY10 P/E, versus SMRT’S 20 x FY11 P/E multiple.

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