SMRT – OCBC

BUSINESS AS USUAL BUT FOCUS

ON MINISTERIAL STATEMENT

•Beleaguered SMRT CEO resigns

•No interim impact; business as usual

•Ministerial Statement will be key focus

SMRT CEO resigns immediately.

SMRT announced late Friday evening that CEO Saw Phaik Hwa has decided to step down with immediate effect to “pursue personal interests”. Ms. Saw had been under pressure ever since the series of major service disruptions in Dec last year but had previously rejected calls for her resignation whilst stating her commitment to fix the service issues.

No interim impact; business as usual.

As the Board of Directors search for a new CEO – most probably externally – Board member, Mr. Tan Ek Kia, will assume interim executive responsibility for the management of the company. With his previous work experience as Managing Director of Shell Malaysia Exploration and Production and Chairman of Shell North East Asia, we do not foresee any issues arising from this temporary arrangement on operations.

Ministerial Statement to shed light on punishment.

Transport Minister, Mr. Lui Tuck Yew, will make a Ministerial Statement today on the MRT service disruptions last month. Some of the issues expected to be discussed are on the Committee of Inquiry and its work, reasons for the disruptions as well as if SMRT will be held accountable for the breakdowns.

Initial selling pressure may occur but maintain BUY.

While the timing was a surprise, Ms. Saw’s resignation had been somewhat expected and should not affect its share price. Instead, we believe that investor focus will be on the Transport Minister’s Ministerial Statement, which should provide some indication on the penalty to be imposed on SMRT as well as the possibility of any additional costs necessary to plug service gaps. As we maintain our assertion that SMRT’s dividend payout ability remains intact at least for the year (FY12F dividend yield: 4.4%), we leave our DDMderived fair value of S$2.04 unchanged and maintain our BUY rating on SMRT.