SMRT – DBSV
Train derails at 4Q10
• 4Q10 net profit (S$22.7m, -41% yoy) way below consensus’ and our expectations
• Impacted by higher staff, R&M and depreciation costs; trimmed FY11F forecast by 6%
• Market has been overly euphoric over prospects, counter not cheap at c.20x PE
• Downgrade to Fully Valued; TP S$2.00
4Q earnings came in way below consensus’ and our expectations. Net profit of S$22.7m was down 41%/42% yoy/qoq. The dismal performance came from higher staff costs (+15% yoy), repair & maintenance (+33% yoy) and depreciation (+10% yoy), while topline grew by only 3.7% to S$225m. As a result, 4Q10 EBIT margin was at 12%, down 5.2ppt, a far cry from the 17.2% registered a year earlier. FY10 net profit ended flat at S$162.9m, against a year ago, 7.7% below our expectations.
Share price beat STI by 15.8% YTD. SMRT’s share price has done well, up 19.4% YTD and outperforming the STI by 15.8%. This was on the back of high market expectations of robust ridership growth and the opening of Circle Line Stage 1 & 2.
Time to disembark; Downgrade to Fully Valued, TP cut to S$2.00. We cut our FY11F forecasts by 6%, on higher staff, and repair and maintenance costs. This will be partially offset by higher train ridership, with the opening of the Circle Line. The recent strength in share price has exceeded our expectations. While the long term prospects for rail in Singapore is positive, we believe the market has been overly euphoric over the opening of the Circle Line Stages 1& 2 in the past couple of weeks. Our TP, based on average of PE (15x) and DCF, is cut to S$2.00 (S$2.08) on lower FY11F earnings.
Switch to cheaper ComfortDelGro. The counter is now trading at 20.4x on our FY11F revised earnings, which seems rather rich. For investors who would still like exposure to land transport counters, we recommend a switch to ComfortDelGro, trading at c.15x prospective PE, a 25% discount from SMRT.
SMRT – Kim Eng
Higher‐than‐expected costs take away the shine
Event
SMRT’s full‐year results were below expectations due to a sharper‐than‐expected spike in operating costs in 4Q10, mainly in the areas of bus and train repair and maintenance (R&M) and energy costs. However, rental income exceeded expectations as more commercial space was added in MRT stations. SMRT also raised its final dividend to $0.0675 per share, above our expectation of $0.06 per share.
Our View
The main reasons behind the lower‐than‐expected results were a sharp jump in both R&M and energy costs. There was also an unexpected $3.3m provision for doubtful debt in the engineering division and higher provision for taxi insurance.
However, revenue was slightly above our forecast due mainly to higher MRT revenue and rental income. For the full year, train ridership grew by 5%, propelled by higher ridership on the North‐South and East‐West lines, as well as contribution from Circle Line Stage 3.
We have cut our FY11 forecast by 10% as we now expect R&M cost, energy cost and depreciation charges to be higher than previously expected and may stay high for the next few quarters. SMRT’s fleet of buses and trains is ageing, hence the higher R&M cost while more renovated stations will lead to higher depreciation charges.
Action & Recommendation
We downgrade SMRT to SELL. At 20x our revised FY11 forecast and relative to its peak historical valuation of 21x, the stock is now fully valued. With the strong run‐up in the past few months (up from $2.13 since our last call), outperformance is unlikely for a couple of quarters until the jump in operating costs tapers off and the expected rise in ridership translates to a better bottom line.
SMRT – SGX
DISPOSAL OF 50% SHAREHOLDING INTEREST IN TRANSIT LINK PTE LTD
SMRT Corporation Ltd (“SMRT”) wishes to announce that its wholly-owned subsidiary, SMRT Trains Ltd, has today completed the disposal of its 50% shareholding interest in the issued and paid-up share capital of Transit Link Pte Ltd (“Transit Link”) to the Land Transport Authority (“LTA”) for a cash consideration based on 50% of the audited net asset value of Transit Link as at 31 March 2010 (“Audited NAV”), being the amount of $1,731,446. The Audited NAV of Transit Link is in the amount of $3,462,892. Transit Link will thus cease to be an associated company of SMRT.
Transit Link is a Transit Acquirer for the public transport fare collection system. As the LTA has been assigned to take on the role of Transit Acquirer by the Minister for Transport, it has been mutually agreed that the sale of Transit Link to the LTA would serve the interests of all parties involved.
The above disposal is not expected to have any material impact on the net tangible assets per share and earnings per share of SMRT for the year ending 31 March 2011.
None of the Directors of SMRT has an interest, direct or indirect, in the above transaction. As far as the Directors are aware, no controlling shareholder of SMRT has an interest, direct or indirect, in the above transaction.
SingPost – BT
SingPost’s Q4 net profit up 15.8% at $40.91m
Group revenue also rises 15.8% y-o-y to $133.84m
SINGAPORE Post (SingPost) chalked up a 15.8 per cent year-on-year increase in net profit to $40.91 million for the fourth quarter ended March 31, 2010.
Excluding one-off items, such as benefits from the Jobs Credit Scheme, amortisation of deferred gain on intellectual property rights and the impact of the reduction in corporate tax rate last year, underlying net profit grew 12 per cent to $36.5 million, said SingPost.
Group revenue also rose 15.8 per cent year-on-year to $133.84 million, on the back of stronger performance across its various business segments and the consolidation of revenue from its acquisition of Quantium Solutions.
Earnings per share for Q4 were 2.123 cents, up from 1.834 cents in the previous corresponding quarter.
For the full year ended March 31, 2010, net profit was 10.9 per cent higher year-on-year at $164.97 million while group revenue increased 9.2 per cent to $525.51 million. Excluding one-off items, underlying net profit was marginally higher, climbing 0.3 per cent to $147.75 million.
SingPost has proposed a final dividend of 2.5 cents per share – subject to shareholder approval – which would bring the total annual dividend to 6.25 cents per share. If approved, the final dividend will be paid on July 15.
‘To build a more balanced revenue and earnings profile, we are looking to further increase contributions from markets outside Singapore, in particular in Asia-Pacific, and to expand our non-mail businesses,’ said Ng Hin Lee, SingPost’s deputy group chief executive officer.
In March, the group issued $200 million of 10-year fixed rate notes at a yearly interest rate of 3.5 per cent, the proceeds of which will be used to fund new investments and as working capital.
From May 15, SingPost plans to switch to a five-day mail collection and delivery service, in an effort to optimise resources. The initiative is a result of declining public mail volumes – and in particular a 40 per cent reduction of mail on Saturdays – as well as changing lifestyles and business environment, SingPost said, adding that savings will be passed on to consumers.
SingPost closed one cent lower in trading yesterday at $1.09.
SMRT – BT
SMRT’s Q4 profit falls 41.4% to $22.7m on higher costs
But increasing train ridership helps Q4 revenue climb 3.7% to $225.1m
SMRT Corp’s net profit for the fourth quarter ended March 31, 2010, slipped 41.4 per cent to $22.7 million on higher staff expenses and repair and maintenance costs, as well as an increase in income tax. But Q4 revenue climbed 3.7 per cent to $225.1 million on higher train ridership.
The higher staff costs were due to the opening of the Circle Line. Stage 3 of this new orbital line was opened for operations in May 2009, followed by Stages 1 and 2 in April 2010. SMRT said the rest of the Circle Line – Stages 4 and 5 – will open in 2011.
Earnings per share for the fourth quarter was 1.5 cents – down from 2.5 cents in the same quarter a year ago.
For the full year, net profit for Singapore’s biggest rail operator rose a marginal 0.1 per cent to $162.9 million while full-year revenue inched up 1.8 per cent to $895.1 million. Operating income was higher and the company benefited from the government’s budget measures, lower energy costs and lower other operating expenses.
FY2010’s earnings per share was unchanged at 10.7 cents.
A final ordinary dividend of 6.75 cents per share has been proposed, bringing the total dividend for the year to 8.5 cents.
‘SMRT has achieved a satisfactory net profit of $162.9 million despite the fare reduction,’ said SMRT president and CEO Saw Phaik Hwa.
She said train ridership for FY2010 had increased 5.2 per cent as compared with a year earlier.
‘We expect the recovery of the Singapore economy and the progressive opening of Circle Line stages to continue to contribute to the increase in ridership,’ Ms Saw added.
During FY2010, revenue from train operations rose 1.4 per cent to $480.7 million due mainly to higher MRT ridership from the North-South and East-West lines and contribution from Circle Line Stage 3. Total ridership for the full year had risen 5.2 per cent to 536.6 million.
But the revenue increase was partially offset by lower average MRT fare. Operating profit was 0.6 per cent lower at $129.7 million, mostly because of higher repair and maintenance costs, staff and related expenses and electricity costs.
SMRT also runs a smaller fleet of buses and taxis. Its FY2010 revenue from bus operations slipped 3.6 per cent to $199.7 million mainly because of the lower average fare. A lower operating loss of $1.9 million was incurred compared with $4.9 million the previous year mainly due to lower diesel cost, although this was partially offset by the provision for the fuel equalisation account.
The group’s taxi operations posted 1.0 per cent less revenue of $71 million. Operating profit returned to the black with $1.8 million against an operating loss of $6.3 million a year ago.
Two other businesses also showed strong gains – rental, and engineering and other services. Rental revenue jumped 13 per cent to $65 million as a result of better yield and expanded space following the redevelopment of MRT stations. Operating profit was up 9.4 per cent at $50.8 million.
Revenue for engineering and other services jumped 29.8 per cent to $47.3 million on improved consultancy revenue, partially offset by lower diesel sales to taxi hirers. Operating profit surged 55.9 per cent to $9.9 million but this was partially offset by higher allowance for doubtful debts.
Going forward, Ms Saw said that a 2.5 per cent fare reduction in accordance with the fare formula would be applied to the overall fares once the 15-month fare discount of 3 per cent ceases from July 3, 2010.
She added: ‘In the next 12 months, volatility in energy prices and the cessation of government budget measures as announced in the budget speech 2009 will also impact our profitability.’