SMRT – OCBC

HIGHER COSTS TO COME AS EXPECTED

• Increased train runs to reduce wait time

• Electricity consumption will go up

• But accounted for in FY12F estimates

Train frequency to increase as expected.

SMRT announced on Sunday that it will increase train frequencies on the NSEWL (North-South East-West Lines) to lower the average interval waiting times during peak commuter travelling periods. Previously, the interval between trains had been between 3.75-5 minutes following the operational loss of 13 damaged trains but will now return to an interval of between 2.14-3 minutes following the subsequent repairs made to 12 of the trains. However, speed restrictions for certain parts of the NSEWL tracks will remain in place – as a precautionary measure pending the conclusion of further investigation – and will add about two minutes to end-to-end travel time.

COI appointed; internal investigation ongoing.

The transport minister has appointed a three-person Committee of Inquiry (COI) to look into last month’s service disruptions. The COI will gather information from SMRT and the Land Transport Authority (LTA) as well as solicit evidence from the public. Meanwhile, internally, SMRT has commenced its own investigation, which is expected to take at least two months to complete.

Higher costs factored in; earnings est. unchanged.

As we have previously lowered our FY12F operating profits to account for the possibility of increased train runs and higher 3Q repair and maintenance costs, we are leaving our earnings estimates unchanged pending the release of SMRT’s 3Q12 results.

Dividend payout uninhibited – maintain BUY.

Even with the expected increase in repair and maintenance expenses as well as electricity consumption costs resulting from a greater number of train runs, we maintain our assertion that SMRT’s dividend payout ability remains intact at least for the year (FY12F dividend yield: 4.4%). Therefore, we leave our DDM-derived fair value of S$2.04 unchanged and maintain our BUY rating on SMRT.

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