SMRT

UOBKayhian on 31 Jul 2013


Well below market expectations. 1QFY14 net profit of S$16.3m (- 55% yoy) was due to a collapse in EBITDA margin to 21.8% from 28.9% on rising costs. Key increases in costs include staff (+23% yoy), depreciation (+10% yoy) and repairs & maintenance (+4% yoy).

Earnings and target price slashed. We cut earnings forecasts by 41- 43% to reflect higher costs and no hike in fares. Consequently, our DCFbased target price has been reduced by 19% to S$1.02 (from S$1.26). Following our earnings cut, our net profit forecasts are 29-34% below consensus. We see consensus downgrades as a negative share price catalyst.

SELL. Better yield elsewhere. We maintain SELL with a DCF-derived target price of S$1.02/share. Although a potential fare review or an introduction of a financing framework (for bus and trains) could be favourable, the negotiations with the authorities could be a protracted affair. Meanwhile, we see better high-yield stocks that offer less regulatory risks. Our high-yield picks include Suntec REIT, M1 and StarHub.

(MRT SP/SELL/S$1.43/Target: S$1.02)
FY14F PE (x): 31.1
FY15F PE (x): 29.8