SMRT – DBS

Tight cost management boosts earnings

Comment on Results

2Q08 results were above expectations as SMRT performed better than we expected in managing costs.

Revenue grew by 5.2% yoy to S$197m for the quarter whilst EBIT grew by 19% yoy to S$48m, as operating costs were flat yoy. Net earnings grew by 25% yoy to S$39.5m for 2Q08.

At half-time, SMRT’s net earnings are up by 32% yoy to S$77.5m on top line growth of 6.4% to S$391m. Revenue and profitability were led by core MRT operations, which saw revenue grew by 5.7%, driven by higher ridership and fares, with EBIT expanding by 15%. There were also growing contributions from the rental and advertising segments.

Recommendation

We have raised our earnings estimates for FY08 and FY09 by 12% and 11% respectively to factor in SMRT’s tight cost management. As a result, we have also raised our DPS forecast for SMRT (based on 80% payout) to 7.5cts net and 8cts net for FY08 and FY09 respectively.

On the back of our higher DPS estimates, we have raised our target price marginally to S$1.78, based on a target net yield of 4.5% for FYE Mar ’09. We maintain our HOLD call.

SMRT has declared an interim dividend of 1.75cts net, compared with c. 1.25cts net a year ago.