Category: SMRT
SMRT – Kim Eng
Coming full circle
Event
• The final two stages of the Circle Line (CCL) will start operations from tomorrow. There will be 12 new stations, bringing the total number of CCL stations to 28. We understand that an extension with another two stations stretching from Promenade to the Marina Bay area will be launched in 1Q12. Despite the potential jump in ridership, we expect higher energy costs as a result of increased train runs to weigh on SMRT’s EBIT margin. Reiterate HOLD.
Our View
• The average ridership on the CCL currently is about 180,000 per day. With the opening of Stages 4 and 5 tomorrow, SMRT aims to achieve breakeven ridership of 330,000 per day in 6‐9 months’ time once commuters’ travel patterns stabilise. In our view, this projection seems overly optimistic given that the gestation period may be longer than expected. Ultimately, management targets a steady‐state ridership of 400,000‐500,000 daily.
• Rail revenue, however, will continue to lag ridership growth because of lower average fares with the implementation of the distance‐based fare system in July last year. We expect margin pressure to persist in the next few quarters with increased train frequency, which will further bump up electricity consumption. But there will be respite for SMRT from lower average tariffs in 2HFY Mar12 following the recent slide in fuel oil prices.
• Rental income, on the other hand, should receive a boost as retail space totalling 868 sq m at three new CCL stations – Holland Village (596.2 sq m), one‐north (248.3 sq m) and Botanic Gardens (23.5 sq m) – has been fully leased out. According to management, the entire CCL with a combined retail space of 3,150 sq m, or 80 shops, now enjoys a high occupancy rate of more than 90%.
Action & Recommendation
With no major near‐term catalysts in sight, we maintain our HOLD recommendation on SMRT with a target price of $1.82. The share price should be well‐supported by a decent dividend yield of almost 5%.
SMRT – Kim Eng
Coming full circle
Event
• The final two stages of the Circle Line (CCL) will start operations from tomorrow. There will be 12 new stations, bringing the total number of CCL stations to 28. We understand that an extension with another two stations stretching from Promenade to the Marina Bay area will be launched in 1Q12. Despite the potential jump in ridership, we expect higher energy costs as a result of increased train runs to weigh on SMRT’s EBIT margin. Reiterate HOLD.
Our View
• The average ridership on the CCL currently is about 180,000 per day. With the opening of Stages 4 and 5 tomorrow, SMRT aims to achieve breakeven ridership of 330,000 per day in 6‐9 months’ time once commuters’ travel patterns stabilise. In our view, this projection seems overly optimistic given that the gestation period may be longer than expected. Ultimately, management targets a steady‐state ridership of 400,000‐500,000 daily.
• Rail revenue, however, will continue to lag ridership growth because of lower average fares with the implementation of the distance‐based fare system in July last year. We expect margin pressure to persist in the next few quarters with increased train frequency, which will further bump up electricity consumption. But there will be respite for SMRT from lower average tariffs in 2HFY Mar12 following the recent slide in fuel oil prices.
• Rental income, on the other hand, should receive a boost as retail space totalling 868 sq m at three new CCL stations – Holland Village (596.2 sq m), one‐north (248.3 sq m) and Botanic Gardens (23.5 sq m) – has been fully leased out. According to management, the entire CCL with a combined retail space of 3,150 sq m, or 80 shops, now enjoys a high occupancy rate of more than 90%.
Action & Recommendation
With no major near‐term catalysts in sight, we maintain our HOLD recommendation on SMRT with a target price of $1.82. The share price should be well‐supported by a decent dividend yield of almost 5%.
SMRT – BT
Analysts expect bumpy ride for SMRT
OCBC says higher operating expenses are expected to eat into its FY12 income
AS 12 more stations on the Circle Line open on Oct 8, analysts will also be watching if the boost in ridership meets expectations for SMRT Corporation.
Within the next six to nine months, the ridership is expected to increase from an average of 180,000 to about 400,000 commuters, with 28 stations fully accessible as part of the $8 billion network project.
‘Currently, the Circle Line’s daily ridership remains stagnant at about 180,000 on average (or over 200,000 during peak hours), which is still a way to go from the group’s projected break-even ridership of 350,000 per day,’ said Nomura in a recent report.
The lower-than-expected growth in ridership along the Circle Line compares with the 6.4 per cent year-on-year rise in overall rail ridership at the group’s three main lines in August, Nomura noted.
But the brokerage said this reflects more the fact that the North-South and East-West mass rapid lines continue to experience strong ridership growth.
The news of the full Circle Line operation – excluding an extension at two existing stations that will be completed in the first quarter of 2012 – provides ‘temporary reprieve from otherwise negative publicity’, OCBC Investment Research said in a client note.
And there has been a lot of bad news for the transport operator of late.
Last Tuesday, a power trip stalled train services on the entire Circle Line during the morning rush hour, with about 26,600 commuters affected by the four- hour breakdown.
Transport Minister Lui Tuck Yew has called for a thorough investigation and said SMRT would be penalised if found to be at fault.
Then, last month, a north-bound SMRT train that had been spray-painted with graffiti was found – making this the second case of vandalism and security breach in two years.
SMRT is also fighting a lawsuit by the family of a Thai teenager who had lost both her legs after falling onto the tracks at the Ang Mo Kio MRT station in April.
OCBC said that higher operating expenses are expected to eat into SMRT’s fiscal 2012 earnings, which should come in lower than its earnings for fiscal 2011.
‘With the six to nine month lead-time required to ramp-up and stabilise ridership levels, we view the Circle Line’s operating profit contribution to be negative for FY12.’
By Nomura’s estimates, the Circle Line should contribute pre-tax losses of $20 million this year, which should shrink to $3 million next year.
Still, OCBC is sanguine, saying that SMRT could benefit from electricity prices heading lower due to the poor economic outlook, and more opportunities in the rental space and advertising area. It kept its ‘buy’ rating on the stock and a fair value of $2.04.
Nomura held a ‘neutral’ rating on the stock and a target price of $2.05.
It said the stock’s valuation of 20 times its fiscal 2012 earnings is ‘demanding’ though SMRT’s dividend yield of 4.8 per cent stays attractive.
Nomura has a ‘buy’ rating on competitor ComfortDelGro, saying its valuations are more compelling.
Shares of SMRT lost one-and-a-half cents to end at $1.76 on Friday.
SMRT – BT
Analysts expect bumpy ride for SMRT
OCBC says higher operating expenses are expected to eat into its FY12 income
AS 12 more stations on the Circle Line open on Oct 8, analysts will also be watching if the boost in ridership meets expectations for SMRT Corporation.
Within the next six to nine months, the ridership is expected to increase from an average of 180,000 to about 400,000 commuters, with 28 stations fully accessible as part of the $8 billion network project.
‘Currently, the Circle Line’s daily ridership remains stagnant at about 180,000 on average (or over 200,000 during peak hours), which is still a way to go from the group’s projected break-even ridership of 350,000 per day,’ said Nomura in a recent report.
The lower-than-expected growth in ridership along the Circle Line compares with the 6.4 per cent year-on-year rise in overall rail ridership at the group’s three main lines in August, Nomura noted.
But the brokerage said this reflects more the fact that the North-South and East-West mass rapid lines continue to experience strong ridership growth.
The news of the full Circle Line operation – excluding an extension at two existing stations that will be completed in the first quarter of 2012 – provides ‘temporary reprieve from otherwise negative publicity’, OCBC Investment Research said in a client note.
And there has been a lot of bad news for the transport operator of late.
Last Tuesday, a power trip stalled train services on the entire Circle Line during the morning rush hour, with about 26,600 commuters affected by the four- hour breakdown.
Transport Minister Lui Tuck Yew has called for a thorough investigation and said SMRT would be penalised if found to be at fault.
Then, last month, a north-bound SMRT train that had been spray-painted with graffiti was found – making this the second case of vandalism and security breach in two years.
SMRT is also fighting a lawsuit by the family of a Thai teenager who had lost both her legs after falling onto the tracks at the Ang Mo Kio MRT station in April.
OCBC said that higher operating expenses are expected to eat into SMRT’s fiscal 2012 earnings, which should come in lower than its earnings for fiscal 2011.
‘With the six to nine month lead-time required to ramp-up and stabilise ridership levels, we view the Circle Line’s operating profit contribution to be negative for FY12.’
By Nomura’s estimates, the Circle Line should contribute pre-tax losses of $20 million this year, which should shrink to $3 million next year.
Still, OCBC is sanguine, saying that SMRT could benefit from electricity prices heading lower due to the poor economic outlook, and more opportunities in the rental space and advertising area. It kept its ‘buy’ rating on the stock and a fair value of $2.04.
Nomura held a ‘neutral’ rating on the stock and a target price of $2.05.
It said the stock’s valuation of 20 times its fiscal 2012 earnings is ‘demanding’ though SMRT’s dividend yield of 4.8 per cent stays attractive.
Nomura has a ‘buy’ rating on competitor ComfortDelGro, saying its valuations are more compelling.
Shares of SMRT lost one-and-a-half cents to end at $1.76 on Friday.
Land Transport – BT
PTC gives nod for net 1% hike in bus, train fares
THE Public Transport Council (PTC) has allowed an overall net fare adjustment of one per cent, and operators SBS Transit and SMRT can expect a combined increase in annual revenue of $15 million.
From Oct 8, 2011, adult card fares for buses and trains will go up by two cents a journey, while senior citizen concessionary card fares will increase by one cent a journey although senior citizens will now get concessionary travel all day throughout the week.
Child/student concessionary card fares remain unchanged. But cash fares for adult bus and train rides will be 10 cents higher per trip across-the-board. There will be no change to senior citizen and child/student cash fares.
The PTC said that overall, the average fare increase translates to about 15 cents a week or about $8 a year for the 85 per cent of commuters who would experience a fare increase.
In July, the two public transport operators applied for the maximum fare adjustment of 2.8 per cent allowed under the fare formula for 2011, citing rising fuel and manpower costs.
‘The approved fare adjustment of one per cent is significantly less than the quantum of adjustment that the operators have applied for,’ said PTC chairman Gerard Ee.
He said that the decision comes after careful deliberation, and the council balanced the need to keep fares affordable with the long-term viability of the public transport operators so that they can continue to make capital investments and provide the expected quality of service.
Mr Ee cited the example of SMRT, which has already bought 238 new buses for $100 million to renew and expand its fleet from next month until December 2012, and SBST, which has purchased 600 buses for $268 million for delivery this year and the next.
‘We have tried to keep the fare adjustment small for commuters but we know that any fare adjustment, no matter how small, would still be felt by commuters, especially those from needy families,’ he said, adding that those who need additional assistance will get help from the government’s Public Transport Fund. To help needy families cope with the fare adjustment, the government together with SMRT and SBS Transit have set aside $4 million to fund 200,000 public transport vouchers.
Mr Ee also said that the PTC focused on senior citizens because of the greying population and to support moves to encourage them to work beyond retirement age.
The PTC said that the fare adjustment took into consideration Singapore’s economic outlook and the affordability of public transport.
‘The economic outlook remains positive with the latest forecast for GDP to grow by 5-7 per cent in 2011, and the latest unemployment rate as at June 2011 remains low at 2.1 per cent,’ the council said. ‘The public transport affordability indicator has also been on a downtrend for the past seven years, falling from 5.3 per cent in 2003 to 3.7 per cent in 2010. This indicates that bus and train fares have remained affordable for the majority of commuters.’
Under the fare formula, the maximum fare adjustment allowable is calculated by subtracting 1.5 per cent from the Price Index, where 1.5 per cent is the productivity extraction set for the five years from 2008-2012. As for the Price Index, it is derived from adding half of the change in the Consumer Price Index over the preceding year, to half of the change in the average monthly earnings for all workers over the preceding year.
The PTC delayed 2011’s fare adjustment to coincide with the opening of the final two phases of the Circle Line on Oct 8. The exercise usually takes place in the middle of the year.
This year’s hike comes on the back of two straight years of cuts. Last year, the PTC granted an overall 2.5 per cent reduction in bus and train fares and that took effect on July 3, 2010 with the introduction of Distance Fares. Under Distance Fares, the transfer penalty was removed completely, so commuters travelling the same distance pay the same fare for the same type of service, whether they travel direct or make transfers. Then, the PTC said that the 63 per cent of commuters who enjoyed fare savings spent an average of 48 cents a week less, or $25 a year. As for the 34 per cent of commuters who saw an increase in their public transport expenditure, the average increase was 31 cents a week or $16 a year.
In 2009, SBST and SMRT announced that they would not apply for fare adjustments that year due to the global financial crisis. Both worked with the PTC to pass back savings from the 2009 Singapore Budget, so that from April 1, 2009, commuters benefited from an overall 4.6 per cent cut in bus and train fares.
Under the fare adjustment formula in 2009, the public transport operators could have applied for an increase of up to 5 per cent. But before 2009, fares were increased in the preceding three years – 0.7 per cent in 2008, 1.1 per cent in 2007, and 1.7 per cent in 2006.