Month: October 2008
SMRT – DMG
Investing in Shenzhen transport company
SMRT has entered into an agreement to acquire a 49% equity interest in Shenzhen Zona Transportation, a leading road transport company in Shenzhen. The purchase consideration of Rmb 430m (S$90m) will be paid in cash. The balance 51% continues to be held by National Express Transportation Group.
Zona provides the following:
• Taxi services and car and bus repair within Shenzhen;
• Town and county bus services, car leasing, bus and coach services within and beyond Shenzhen; and
• Public bus and mini bus services outside the Shenzhen Special Economic Zone.
Zona has an existing fleet of 803 buses, 142 chartered & tourist buses, 78 long haul coaches, 830 taxis and 260 leased cars in the Shenzhen region.
Following the acquisition, Zona will be an associate company under SMRT. The investment is earnings accretive. But SMRT expects immaterial financial impact on SMRT’s FY09 results.
As of Dec 07, Zona has a net asset value of Rmb 483m (S$101m), represented by NTA of Rmb 59m and net intangible asset of Rmb 424m. The net intangible assets largely comprise taxi operating licences acquired through open bids.
Separately, SMRT has signed a new 6-mth fixed-rate electricity contract effective 1 Oct 08. The rate for this new contract is 30% higher than that for the previous 6-mth contract, despite the recent softness in crude oil price. We have therefore raised our forecast of FY09 electricity expenses.
On a positive note, we have raised FY09F MRT ridership growth to 10.9% (versus earlier assumption of 9.7%). This follows the 11.6% YoY expansion for Apr-Aug08 to a MRT monthly average ridership of 42.69m. After factoring in higher electricity expenses as well, we are cutting our FY09 net profit forecast by 1.6% to S$144.5m.
SMRT share price has risen 17.9% YTD whilst the STI has fallen 31.9%. Most of the positives are already factored into SMRT share price. Though the investment in Zona is a good start to SMRT expanding overseas, the impact is seen to be marginal in the short term. We see little upside for SMRT share price going ahead. Even the FY09 dividend yield of 4.1% (based on 85% payout ratio) is only slightly higher than the 3-mth SIBOR of 1.85%. The market risk premium is now 9.46%, versus 8.68% two months ago. Consequently, our DCF valuation has been cut from S$2.08 to S$2.03. We are downgrading SMRT from BUY to NEUTRAL.
STEng – BT
ST Engg will acquire assets at distress values
SINGAPORE Technologies Engineering Ltd, Asia’s biggest aircraft maintenance company, will seek acquisitions as a global financial crisis cuts asset prices.
‘During such times, there are opportunities for the group in the midst of the market challenges,’ the company said yesterday in response to Bloomberg queries. ‘We may be able to acquire companies which are now more appealing in terms of valuation.’
ST Engineering said that it will not make use of shareholder approval to buy back shares, preferring to conserve cash for ‘better business opportunities’. Stocks worldwide plunged yesterday, extending the worst global sell-off in 21 years, after US lawmakers rejected a US$700 billion rescue plan for the financial markets, deepening concerns of a widespread recession.
ST Engineering had an order book totalling $9.2 billion as at June 30. The company repairs aircraft and makes military vehicles and navy vessels.
The company added nine cents, or 3.5 per cent, to $2.69 at the close of trading in Singapore. The stock has fallen 28 per cent this year.
ST Engineering has bought assets at distress values before. In 2002, the company purchased the shipbuilding business of US-based Friede Goldman Halter Inc for US$66 million in a bankruptcy auction. — Bloomberg
SMRT – BT
SMRT buys stake in China transport firm
It will pay $89.7m for a 49% stake via its subsidiary SMRT Hong Kong
SMRT Corp has agreed to pay $89.7 million for a 49 per cent stake in a leading road transport company in Shenzhen.
Via subsidiary SMRT Hong Kong, SMRT has entered into a deal to buy investment company Shenzhen Zoto Investment’s equity interest in Shenzhen Zona Transportation Group (Zona).
KhattarWong provided legal services for the transaction.
Zona has a fleet of 803 buses, 142 charter and tourist buses, 78 long-haul coaches, 830 taxis and 260 leased cars in the Shenzhen region.
The Zona group comprises 10 subsidiaries and three associated companies.
Zona itself will become an associate company of SMRT following the acquisition.
SMRT said Zona has grown its bus fleet from just 300 in six years. It is the bus operator in Shenzhen’s Bao An district, so growth is expected to be robust.
The other 51 per cent of Zona’s equity will continue to be held by National Express Transportation Group (NE), a company that provides inter-city bus services in China.
SMRT president and CEO Saw Phaik Hwa said the acquisition is a ‘milestone in the expansion of SMRT’s business overseas’.
Zona is SMRT’s first equity investment. Its other overseas venture was in August last year when its subsidiary SMRT Engineering partnered Dubai real estate developer Nakheel to operate The Palm Monorail there.
The investment in Zona will be accretive to SMRT’s earnings but is not expected to have a material impact on the group’s financial results for full-year 2009.
SMRT posted a 6.2 per cent rise in net profit to $40.3 million for its first quarter ended June 30. Revenue rose 11.2 per cent from the previous year to $215.9 million.