SMRT – Phillip

Profits flattered by one-off gains

Company Overview

SMRT is a multi-modal land transport operator with exposures to various modes of operations, including rail, bus & taxi services. A significant part of its profits are generated from its ancillary businesses, such as advertising & rental of commercial spaces.

Revenue growth in line with expectations

Profits flattered by net one-off gain of S$4.5mn

Undeserving of premium valuations with ongoing challenges to the business

• Maintain Sell with target price of S$1.35

What is the news?

Revenue for SMRT continued to trend north, driven mainly by higher ridership on its rail network with the full opening of Circle Line. Despite significantly higher operating expenses, the Group's EBITDA margins improved by 61bp in the quarter. Consequently, profits for SMRT increased by 4.7%y-y. Management highlighted that operational challenges for the Group remain, as profitability is expected to be impacted by higher staff, depreciation and repair & maintenance costs.

How do we view this?

The strong 4.7% increase in net income was flattered by one-off items that were booked in the quarter. After adjusting for the one-off net gains of S$4.5mn booked, we estimate that underlying profits would have declined by 8% in the quarter.

Investment Actions?

With our expectations of higher operating expenses and stagnant average fares for the year, we believe that the difficult financial performance for SMRT would persist. Despite the ongoing challenges to its outlook, the stock continues to trade at an undeserving premium valuation of 18X P/E. We roll forward our valuation basis and maintain our Sell recommendation on SMRT with target price of S$1.35.

SMRT – Phillip

Profits flattered by one-off gains

Company Overview

SMRT is a multi-modal land transport operator with exposures to various modes of operations, including rail, bus & taxi services. A significant part of its profits are generated from its ancillary businesses, such as advertising & rental of commercial spaces.

Revenue growth in line with expectations

Profits flattered by net one-off gain of S$4.5mn

Undeserving of premium valuations with ongoing challenges to the business

• Maintain Sell with target price of S$1.35

What is the news?

Revenue for SMRT continued to trend north, driven mainly by higher ridership on its rail network with the full opening of Circle Line. Despite significantly higher operating expenses, the Group's EBITDA margins improved by 61bp in the quarter. Consequently, profits for SMRT increased by 4.7%y-y. Management highlighted that operational challenges for the Group remain, as profitability is expected to be impacted by higher staff, depreciation and repair & maintenance costs.

How do we view this?

The strong 4.7% increase in net income was flattered by one-off items that were booked in the quarter. After adjusting for the one-off net gains of S$4.5mn booked, we estimate that underlying profits would have declined by 8% in the quarter.

Investment Actions?

With our expectations of higher operating expenses and stagnant average fares for the year, we believe that the difficult financial performance for SMRT would persist. Despite the ongoing challenges to its outlook, the stock continues to trade at an undeserving premium valuation of 18X P/E. We roll forward our valuation basis and maintain our Sell recommendation on SMRT with target price of S$1.35.

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