Dividend Slashed As Prospects Dim

SMRT reported 4QFY13 results which came in below the market’s already lowered expectations. This pulled down FY13 earnings, which slumped 31% to SGD83m. Management continues to foresee challenges that will impact profitability in the short term. The payout ratio has been cut to 45% of earnings. We lower FY14 earnings by 16%. Maintain SELL with lower DCF TP of SGD1.25 (from SGD1.37).

4QFY13 earnings in the red due to cost pressures, impairment. SMRT reported 4QFY13 PATMI losses of SGD12m (versus SGD14m profit in 4QFY12) which came in below our and consensus’ expectations. The weak results were due to higher staff and repair and maintenance costs, as well as a SGD17m impairment of interest in Shenzhen Zona, partially offset by a SGD22m goodwill impairment done in 4QFY12.

Cut in dividend payout could remain till conditions improve. SMRT had declared FY13 dividends of SGD2.5¢ a share, which amounts to a payout ratio of 45% of FY13 PATMI. Historically, SMRT had payout ratios ranging between 70-100% of PATMI. Though management has not committed to a 45% payout ratio for the future, we believe the payout ratio will only be raised when profitability improves.

Unexciting ridership growth. Rail average daily ridership grew 3% y-o-y in 4QFY13, a slowdown from the 9.3-11.8% run rate for the same periods in FY10-12. Average daily ridership for CCL was 360k which we believe remains under the breakeven level.

Maintain SELL, expect further cuts from the street. SMRT’s valuation is far from attractive, trading at 25.6x FY14 (FYE Mar) P/E vs ComfortDelGro’s 16.1x FY13 P/E. Apart from a higher than expected fare revision following a fare formula review, we see little potential catalysts for a turnaround given the cost pressures that SMRT is faced with.

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