SMRT

OCBC on 30 Jul 2012

SMRT reported a decent set of 1Q13 results albeit on lowered expectations. Its revenue rose 8.8% YoY to S$275.2m on the back of higher ridership and full opening of the Circle Line (CCL) while net profit rose 4.7% to S$36.5m. Even when excluding a one-off S$8m insurance compensation, SMRT’s EBITDA inched lower by only 0.1% YoY to S$71.5m. Overall, SMRT’s 1Q13 results – well within our expectations – constituted 26% and 30.4% of our top and bottom line projections. Going forward, SMRT will seek to increase its headcount by 10% to cope with the rise in ridership and increased focus on repairs and maintenance. While this additional headcount means more costs, the hiring will be offset by savings in electricity costs due to hedging as well as increases in its rental and advertising spaces. We maintain our HOLD rating on SMRT with an unchanged fair value estimate of S$1.71 on valuation grounds, and we will turn buyers at S$1.60.

Decent set of 1Q13 results
SMRT reported a decent set of 1Q13 results albeit on lowered expectations. Its revenue rose 8.8% YoY to S$275.2m on the back of higher ridership and full opening of the Circle Line (CCL) while net profit rose 4.7% to S$36.5m. Operating profit was higher by 3.5% to S$43.9m although it was helped by an S$8m insurance payout following damages to a rail asset. However, excluding the insurance compensation, EBITDA inched lower by only 0.1% to S$71.5m. Overall, SMRT’s 1Q13 results – well within our expectations – constituted 26% and 30.4% of our top and bottom line projections.

Increased staff costs to be offset by electricity hedges
Going forward, SMRT will seek to increase its headcount by 10% (~700 from existing 7,064 employees) with the train segment taking 270 of the additional staff in order to cope with the rise in ridership and increased focus on repairs and maintenance. While the additional headcount will result in incremental staff costs, the hiring will take place in phases and be offset by savings in electricity costs due to hedging by the company during earlier declines in fuel prices. SMRT has now fully hedged its electricity requirements for the year.

Rental and advertising space to grow further
With the addition of the Woodlands Xchange by the end of FY13 (March 2013) and the enhancements to two existing stations (Marina Bay and Bayfront), SMRT’s total lettable retail space will increase from by 1,775 sqm to 36,641 sqm and subsequently boost revenue and operating profit contribution from these segments. Given their relatively lower cost base, these segments will remain lucrative and help SMRT cushion the impact of rising operating expenditure related to its train and bus segments.

Do not overlook SMRT; maintain HOLD
We reiterate our belief that SMRT will not have difficulty addressing its higher capital outlay requirements given its existing net cash position and available MTN programme, and leave our FY13 projections unaltered. Whilst we maintain our HOLD rating on SMRT with an unchanged fair value estimate of S$1.71 on valuation grounds, we will turn buyers at S$1.60.