Author: kktan
SMRT – TODAY
Dec disruptions burn S$4.4m hole in SMRT’s pockets
The two train service disruptions in December last year cost SMRT a whopping S$4.4 million in the last financial year, SMRT chairman Koh Yong Guan revealed for the first time yesterday in his speech at the transport operator’s annual general meeting.
The money went towards the legal and professional fees incurred after the disruptions, including rail-related studies and consultancy, an SMRT spokesperson said.
After a turbulent few months following the disruptions – during which a six-week public inquiry threw up damning assessment of SMRT’s maintenance regime and research houses expressed concern over its financials – Mr Koh sought to reassure shareholders present at the AGM that SMRT will seek to maintain its policy of paying at least 60 per cent of its profits after tax as dividends.
According to SMRT’s annual report, its profits after tax fell to S$119.9m, down from S$161.1m in the preceding financial year.
SMRT reduced its dividend per share to 7.45 cents, compared to 8.5 cents previously. Mr Koh said the reduction was “prudent” given SMRT’s cash availability, reduced profit and pressure on margins. He added: “The Board is mindful of the need to provide shareholders with a reasonable return.”
While expenses such as the S$900 million asset renewal plan it previously announced would have an impact on operating costs, Mr Koh said many of the recommendations made by the Committee of Inquiry can be incorporated with no significant additional cost. SMRT is also working with the Land Transport Authority on cost-sharing for projects like the re-signalling and re-sleepering projects.
Mr Koh also stressed that SMRT is “first and foremost an engineering and operations company” and its most important core business is to run a “safe and reliable MRT system in Singapore”. “We do not see running an efficient and reliable MRT system and running SMRT profitably as a public company as contradictory,” he said.
Mr Koh added that SMRT has already taken steps to augment its engineering and technical team, and SMRT will appoint more members with technical backgrounds and relevant expertise to its Trains Board to review and enhance the operator’s maintenance regime.
The operator’s allocation of resources and budget is consistent with its emphasis, said Mr Koh. He pointed out that 90 per cent of its 7,000 staff are working in the areas providing the train and bus services, and 90 per cent of its annual recurrent expenditure goes to these areas.
Mr Koh also highlighted the challenges of being a multi-modal public transport operator. While SMRT’s taxi business ha “turned around” last year, “the current regulatory regime and operating environment will not allow us to run a sustainable, profitable bus business”, Mr Koh said, citing structural issues where cost, particularly fuel cost, has “far outstripped fare adjustments”.
RafflesMed – OCBC
STILL POISED FOR GROWTH
•Strong beneficiary of medical travel growth
•Capacity to increase in stages
•Raising fair value to S$2.73
Healthy medical travel growth trend
We believe that Raffles Medical Group (RMG) would continue to benefit strongly from the healthy uptrend in medical travellers to the region, despite growing supply of new hospital beds from both local and regional competitors. This is premised on the group’s competitive pricing vis-à-vis its comparable peers, strong brand equity and continued drive to enhance the depth of its specialist offerings. Research firm Frost & Sullivan projected that the number of medical travellers to Singapore and the corresponding revenues generated would grow at a CAGR of 12.4% and 13.6% to 851k and S$2.03b, respectively, from 2012 to 2016.
Steady expansion plans to address rising demand
RMG’s new Specialist Centre in Orchard is scheduled to begin operations in 1H13, while its Raffles Hospital extension (additional 102,408 sf) is expected to be completed in early 2015. In the meantime, management has actively decanted some of its existing hospital facilities. This resulted in the opening of a Neuroscience specialist centre in Apr, while renovation works are ongoing for the expansion of its Health Screening facilities. We reckon this would improve its income streams as there could be follow-up treatment procedures.
Ease our margin assumptions slightly, but maintain BUY
RMG recently implemented wage increments across the board in 2Q12, driven by the Singapore government’s initiative to raise salaries in the public healthcare sector. We ease our EBIT margin assumptions and our PATMI forecasts for FY12 and FY13 are reduced by 2.1% and 1.4%, respectively. We believe that part of RMG’s cost pressure also arose from headcount expansion in preparation for the commencement of its new Specialist Centre. While these additional staff would also aid in the generation of revenue at existing premises now, pre-operating expenses incurred would cause some drag on its earnings as their contribution is not at an optimal level yet, in our view. We roll-forward our valuations to 24x blended FY12/13F EPS, which in turn raises our fair value estimate from S$2.58 to S$2.73. Maintain BUY.
RafflesMed – OCBC
STILL POISED FOR GROWTH
•Strong beneficiary of medical travel growth
•Capacity to increase in stages
•Raising fair value to S$2.73
Healthy medical travel growth trend
We believe that Raffles Medical Group (RMG) would continue to benefit strongly from the healthy uptrend in medical travellers to the region, despite growing supply of new hospital beds from both local and regional competitors. This is premised on the group’s competitive pricing vis-à-vis its comparable peers, strong brand equity and continued drive to enhance the depth of its specialist offerings. Research firm Frost & Sullivan projected that the number of medical travellers to Singapore and the corresponding revenues generated would grow at a CAGR of 12.4% and 13.6% to 851k and S$2.03b, respectively, from 2012 to 2016.
Steady expansion plans to address rising demand
RMG’s new Specialist Centre in Orchard is scheduled to begin operations in 1H13, while its Raffles Hospital extension (additional 102,408 sf) is expected to be completed in early 2015. In the meantime, management has actively decanted some of its existing hospital facilities. This resulted in the opening of a Neuroscience specialist centre in Apr, while renovation works are ongoing for the expansion of its Health Screening facilities. We reckon this would improve its income streams as there could be follow-up treatment procedures.
Ease our margin assumptions slightly, but maintain BUY
RMG recently implemented wage increments across the board in 2Q12, driven by the Singapore government’s initiative to raise salaries in the public healthcare sector. We ease our EBIT margin assumptions and our PATMI forecasts for FY12 and FY13 are reduced by 2.1% and 1.4%, respectively. We believe that part of RMG’s cost pressure also arose from headcount expansion in preparation for the commencement of its new Specialist Centre. While these additional staff would also aid in the generation of revenue at existing premises now, pre-operating expenses incurred would cause some drag on its earnings as their contribution is not at an optimal level yet, in our view. We roll-forward our valuations to 24x blended FY12/13F EPS, which in turn raises our fair value estimate from S$2.58 to S$2.73. Maintain BUY.
M1 – OCBC
LIKELY STABLE 2Q12 SHOWING
•2Q12 earnings likely to be S$41.6m
•Likely beneficiary of faster NBN connection rate
•Laggard among telcos
Likely stable 2Q12 showing
M1 Ltd is due to report its 2Q12 results on 16 Jul, where we expect the telco to put in a relatively stable showing. We forecast for revenue to come in around S$250m, up 1.9% YoY, but net profit to fall 2.8% YoY to S$41.6m. On a sequential basis, revenue is likely to fall 4.8%, but net profit should climb 3.2%.
May benefit from stepped-up NBN connection rate
On the NBN front, IDA (Infocomm Development Authority) now requires OpenNet to, starting from Aug, increase its weekly customer connection by nearly 30% to 3,100 from a revised 2,400. This is to reduce the waiting time, which was reported to be as long as six weeks. In addition, IDA has asked OpenNet to put in place a process to cater for sudden spikes in demand, especially during the quarterly computer trade shows. We believe that the increased connection rate would benefit M1 most. This is because M1 1) has a small base, 2) does not have much of a legacy system issue since its current cable modem bandwidth is leased from StarHub, and 3) could further
penetrate into the corporate segment, especially in the more price sensitive SME space.
Laggard among the telcos
Year-to-date, M1's share price has only risen 2.4%, as compared to SingTel's 11.0% climb and StarHub's 24.4% increase over the same period. One reason for M1's underperformance is probably linked to its lack of bundling of services. But we think this concern is probably overdone, given that M1 has been able to defend its mobile market share, despite it having the highest churn rate among the three telcos. And because M1 is not involved in the highly competitive Pay TV arena, it does not have to deal with rising content costs. As a result, M1 is experiencing less pressure on margins. We continue to like M1 for its defensive earnings and relatively attractive dividend yield of 5.7%. Maintain BUY with S$2.81 fair value.
ComfortDelgro – CIMB
SBS Transit to add 1,000 more buses for S$433m
Additional buses are part of fleet renewal programme, no changes to capex. SBST has announced that they will be adding 1,000 new buses from Jan 2013 to 2015 at a cost of S$433m. This announcement does not come as a surprise as the additions to the fleet are part of CD’s fleet renewal programme which started in 2006. Our capex assumption of S$500m for FY12 has factored in this increase in bus fleet. We think near term earnings impact could be minimal as current bus operation losses for CD accounts for about 1.5% of overall EBIT. Moreover, this scheme will be rolled out over a span of a few years therefore any earnings impact is expected to be spread out. Maintain BUY on CD, with DCF derived TP of S$1.75.
26% of new fleet funded through BSEP. SBST has announced that they will be adding 1,000 new buses from Jan 2013 to 2015 at a cost of S$433m. SBST has also commented that close to 90% of its bus fleet will be new by 2015, and its fleet size is expected to increase by about 13% to 3,400 buses, which will be its largest to date. Out of the 1,000 new buses, 260 of them will be funded under the Bus Services Enhancement Programme (BSEP), while SBST will fund the remaining 740.
Recall the BSEP announced during Singapore Budget. During the Singapore Budget in Feb 2012, it was announced that the government will increase public bus fleet by 800 buses over the next five years, and of the total 800 buses, 550 (69%) will be funded by the government while the remaining 250 (31%) will be provided by the public transport operators.