- 1QFY3/15 net income of SGD22.4m (+37% YoY) in line. Recent fare hikes helped to narrow losses at fare-based business. Non-fare performed better too.
- Management remains confident of prospects with impending regulatory changes. No updates were provided.
- Maintain HOLD and unchanged TP of SGD1.36.
1QFY3/15 net income made up 33% of FY3/15E. Losses at fare-based business narrowed to SGD1.1m (1QFY3/14: SGD5.5m), helped by recent fare hikes and strong cost control. Non-fare operating profit improved to SGD29.9m (+17% YoY), aided by rate uplift from taxi rental renewals, higher rentals for retail space and increased advertising. Management remains confident of prospects with impending regulatory changes but no details or timeline were provided for the long-awaited rail transition.
What’s Our View
The treatment of SMRT’s asset purchase obligations under the current licensing regime remains the biggest hurdle to transition, in our view. LTA’s recent comments on SMRT’s financial obligations worth SGD2b and the “wide gap between SMRT’s expectations and LTA’s position” on rail transition highlight the challenges. Details remain scarce and the stock’s 60% YTD rally may have factored in the positives. In our base-case scenario of its valuation post-transition, we assume that: 1) its rail and bus operating assets will be sold to the regulators for SGD1.0b; 2) contractual agreements under the previous regime will be written off; and 3) bus and rail (including rental profits) margins will be 10% post-transition. Maintain HOLD with unchanged base-case TP of SGD1.36.
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