Category: SMRT
SMRT – BT
SMRT Q3 net profit dips 5.3%
SMRT Corp’s net profit fell 5.3 per cent year-on-year to $38.3 million for the third quarter ended Dec 31, 2007, even as increased ridership, a higher average taxi hired-out fleet and rental/advertising growth pushed group revenue up.
The earnings fall was because the previous corresponding quarter included exceptional items, a key one being the inclusion of a final contribution from expired cards.
Q3 revenue rose 7.3 per cent to $202.1 million with revenue growth from all sectors. SMRT operates Singapore’s biggest rail network, as well as relatively small fleets of buses and taxis.
But its other operating income dropped 69.5 per cent or about $8.5 million to $3.73 million, in the absence of the exceptional items it saw in the previous corresponding quarter.
Excluding those exceptional items, SMRT Corp said the Q3 net profit figure would have been a $5.4 million or 16.4 per cent improvement to $38.3 million.
‘SMRT has delivered another set of good operating results in Q3 FY08 despite the higher operating cost environment,’ said president and CEO Saw Phaik Hwa. ‘We will continue to pursue opportunities to grow our revenue and at the same time manage costs in all aspects of our businesses.’
Operating profit from the group’s MRT operations in Q3 rose 4.8 per cent to $33 million because of ridership growth. Staff costs were higher. Average daily ridership rose 7.8 per cent to 1.3 million from the previous corresponding quarter.
Meanwhile, Q3 operating profit from buses slumped to $15,000 from $4 million in the previous corresponding quarter because of increased diesel and staff costs, although this was partially offset by higher daily ridership.
The taxi business was back in the black in Q3 with operating profit of $500,000, compared with a loss of $600,000 in the corresponding quarter last year, thanks to a higher average hired-out rate of almost 94 per cent – up from 76.5 per cent.
As usual, rental revenue and advertising did well. Third-quarter operating profit from the rental of retail space jumped 23.4 per cent to $8 million with the redevelopment of more commercial space at various MRT stations. Operating profit from advertising on buses, trains and stations also improved 6.9 per cent to $3.6 million.
Earnings per share in Q3 fell from 2.7 cents to 2.5 cents.
For the nine months ended Dec 31, 2007, net profit attributable to equity holders rose 16.6 per cent to $115.8 million, while revenue rose 6.7 per cent to $593.6 million.
As for the Land Transport Review announcements yesterday and a week ago, SMRT says it is upbeat about the new developments to both bus and rail. It said there are more opportunities to operate and maintain a more extensive rail network, and a good opportunity to grow the bus business beyond current territories. SMRT currently runs only 800 of the 3,700 public buses in Singapore and is restricted to the northern part of the island.
SMRT – UOBKH
Rail And Bus Ridership Growth A Boon
Rising rail and bus ridership will drive earnings. Anecdotal accounts indicate the mid-Dec 07 taxi fare hikes have led to increased ridership for both rail lines and buses. 81% of SMRT’s revenue and 76% of operating profit are derived from rail and bus operations. We have conservatively factored in a 3% rise in rail and bus ridership (over our earlier forecasts) and this will bring significant earnings enhancement. By 2010, the running of the Circle Line will bring forth a quantum leap in rail revenue.
Retail rental earnings continue to expand. Rental of retail space accounts for only a 5% revenue share, but a significant 18% operating profit share. As more retail space is added to Mass Rapid Transit stations and rented out, rental income will rise, accompanied by expanding operating margin. Taxi operations are now in the black. SMRT recorded a taxi operating profit of S$0.2m in 2QFY08, a reversal from 4QFY07’s S$0.4m loss. This was due to a higher hired-out rate of 90.2% in 2QFY08, vs only 79.2% in 4QFY07. We believe taxi operations can continue to record positive operating profits in the quarters ahead.
S$1.81 target price comprises two components: a) S$1.71 for existing operations, and b) S$0.10 for the Circle Line. Based on an 85% payout ratio, dividend yield is also attractive at 5%.
Transport Sector – Kim Eng
21 January 2008
Turning Up the Heat
♦ Renewed push to boost public transport usage
The Land Transport Authority’s review of the public transport system – the outcomes were partially revealed last Friday – demonstrated the government’s determination to promote and increase public transport usage in the next 10 to 15 years. Amongst other measures, vehicle growth rate will be reduced and ERP charges increased, while integration between feeder buses, trunk buses and MRT will be enhanced.
♦ Upcoming threats to incumbents
With regards to bus operations, two measures to be introduced: 1) centralised bus planning by LTA by 2009; and 2) gradual introduction of more competition could hurt the bus operations of both ComfortDelgro (CD) and SMRT. Centralised bus operations would likely result in the two operators operating buses along less profitable routes, while the introduction of competition would affect the monopoly status that CD and SMRT currently enjoy in their respective areas of operations.
♦ Comparing bus operations of both operators
SBS Transit, CD’s 75%-owned subsidiary, operates approximately 2800 buses in Singapore and has a 75% share of the scheduled bus market. In comparison, SMRT operates a smaller fleet of approximately 900 buses. Notably, SMRT’s domestic bus operations contributed merely 1.4% to 1H08 operating profit (with an operating profit margin of 1.4%), while CD’s domestic bus operations contributed 13.9% of operating profit (with an operating profit margin of 8.5%).
♦ Premature to downgrade outlook for CD and SMRT
Though we think that the new measures from the Land Transport Review could hurt the bus operations of CD and SMRT, we reckon that it would be premature to downgrade our view of both companies. That’s as increasing public transport ridership could very well offset the above-mentioned negative impact on bus operations. We are thus maintaining our forecasts and target prices on both counters.
CD Price $1.61 Target $1.86
SMRT Price $1.73 Target $1.59
Transport – CIMB
Part 1 of 3: Changes to the bus system
• Changes to bus system announced. The Transport Minister, Mr Raymond Lim, announced long-awaited changes to Singapore’s land transport system on 18 Jan 08. Essentially, the key objective is to make public transport more seamless for commuters and to encourage more Singaporeans to choose the bus or MRT over the car. With Singapore’s population expected to surge from 4.68m to 6.5m by 2020, there is a potential 60% increase in demand in daily journeys, from 8.9m to 14.3m. Key strategies are an enhancement of the current hub-and-spoke system to improve connectivity, and the introduction of competition.
• Specific initiatives. The LTA will take on central planning of the entire land transport system. A distance-based fare system would also be introduced. Bus priority measures will be introduced to increase average bus speeds while integrated public transport hubs will continue to be developed and enhanced, supported by an integrated public transport information system.
• Impact of the changes. With increased bus frequencies, running costs are expected to rise for bus operators. In addition, distance-based fares would likely reduce fare income as the transfer fare penalty will be eliminated. Competition will also be introduced as prospective bus operators will have to bid for a package of routes, designed by the LTA.
• What’s next? Rail and car demand management plans are expected to be detailed before the end of Jan 08. For cars, the government may tweak the current 3% annual car population growth rate and raise ERP charges. As for the MRT system, we expect announcements relating to the integration of the new Circle Line and Downtown Line to the existing network as well as a review of the light rail system.
• Neutral on the land transport sector. We maintain our Outperform rating on ComfortDelgro (target price S$2.38, based on DCF valuation, WACC 8.0%), for its global transport footprint, supported by an attractive dividend yield of over 5%. We maintain Underperform on SMRT with an unchanged DCF price target of S$1.82 (7.5% WACC; 2% terminal growth). We see the proposed bus package as potentially challenging for SMRT’s bus operations in the near term.