SMRT – OCBC

3QFY15 results reinforces positive outlook

  • Solid 3QFY15 performance
  • Lower oil prices to help
  • Raise FV; maintain BUY

Good showing from 3QFY15 results

SMRT continued its recovery momentum with a set of solid 3QFY15 results. Its 3QFY15 PATMI jumped 58.4% YoY to S$22.5m on the back of a 6.8% broad-based revenue growth to S$313.2m. 3QFY15 operating profit grew 54.4% YoY to S$31.0m. The fare business continues to show solid growth on higher ridership and average fares as well as lower diesel costs but these gains were partially offset by higher depreciation from a larger train fleet and mandatory contribution to the public transport fund. As for the non-fare business, it improved mainly on higher rental income as a result of higher rental renewal rates of commercial spaces but was partially offset by early retirement of taxis. The sustained strong performance for all three quarters led to a 56.0% YoY increase in its 9MFY15 PATMI to S$70.2m, which formed 76.5% of our slightly more conservative FY15 forecast.

Profitability to improve on lower diesel costs

Our view on SMRT’s outlook remains positive on several factors: 1) its ability to consistently manage expenses since 1QFY15 reflects the measures taken are likely sustainable, 2) management though tightlipped on hedging position, stated electricity costs will continue to decrease; we believe that their FY16 diesel needs are largely exposed and hence should see further reduction in costs as well, 3) management also stated full contribution of rental income from Kallang Wave Mall is likely to materialize only from FY16 onwards, and hence we change our assumption of full contribution from 2HFY15 to FY16 onwards, 4) the taxi segment is likely to see higher growth with newer fleet commanding higher rental income though early retirement of taxis eroded 3QFY15 EBIT by 48.0% YoY to S$0.8m, 5) LTA’s purchase of SMRT’s bus assets in order to switch to the new bus contracting model could potentially see lump sum cash inflow to SMRT, leading to a possible special dividend or acquisition for growth. However, with no details announced, we have yet to factor this into our model.

Raise FV; maintain BUY

Based on the above factors, we increase our FY15 and FY16 PATMI forecasts by 4.1% and 15.3%, respectively, as we believe lower energy costs will drive up profitability at least in FY16. Consequently, our DDM-derived FV increases from S$1.70 to S$1.90. Maintain BUY.

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