SMRT – DBSV
Disembark and move on
• A lower DPS could be additional de-rating catalyst for the counter in light of challenges faced
• Lowered our FY13F yield projections to 4.1%
• Negative profit growth, regulatory risks, management changes are reasons not to hold on
• Cut earnings by 11%/12%; Downgrade to Fully Valued, TP lowered to S$1.50
Lowering our DPS in FY13F. We believe prospective dividend payout could have downside risk on the back of lower profits, higher repair and maintenance costs, and possibly regulatory policy changes. We have lowered our FY13F DPS to 7.25 Scts (interim and final payout) equating to a payout ratio of c.79%, similar to FY07 to FY10. This would bring the prospective dividend yield down to c.4.1%; and, could be an additional de-rating catalyst for the stock, in our view.
Many reasons not to hold on. We project earnings to register -15%/ 1% growth in FY12F/ 13F after trimming forecasts by 11%/12% on higher expenses and lower ridership growth. Higher regulatory risks going forward, as well as the numerous management departures over the last 14 months add to reasons for not holding this counter.
Downgrade to Fully Valued, cut earnings and TP. We lowered our PE/DCF-based TP to S$1.50 given lower earnings, and a lower target PE valuation peg of 13x (-0.5 std dev from average) given sub-par earnings growth. We are cautious on the counter and downgrade SMRT to Fully Valued.