SMRT reported an impressive set of 2QFY15 results that beat our expectations. Its 2QFY15 PATMI jumped 75.5% YoY to S$25.3m on the back of a 6.0% increase in its revenue to S$314.0m. SMRT’s Fare Business turned profitable from operating losses of S$6.8m and S$1.1m in 2QFY14 and 1QFY15 respectively, to record an operating profit of S$5.5m in 2QFY15. The significant improvement in its Fare Business was mainly due to higher ridership and average fares as well as productivity gains and disciplined cost management. We expect energy costs to come down further on recent oil price decline and Kallang Wave Mall rental income to further improve Non-Fare Business profitability. Hence, we increase our PATMI forecasts and upgrade to BUY with an increased DDM-derived fair value estimate of S$1.70 (prev: S$1.65).
2QFY15 earnings above expectations once again
SMRT reported an impressive set of 2QFY15 results that beat our expectations. Its 2QFY15 PATMI jumped 75.5% YoY to S$25.3m on the back of a 6.0% increase in its revenue to S$314.0m. The above-expectations performance for its first two quarters led to a 5.2% increase in SMRT’s 1HFY15 revenue to S$611.1m and a 54.9% increase in its PATMI to S$47.6m. The latter formed 57.1% of our FY15 forecast and 58.9% of Bloomberg’s consensus. SMRT’s Fare Business turned profitable from operating losses of S$6.8m and S$1.1m in 2QFY14 and 1QFY15 respectively, to record an operating profit of S$5.5m in 2QFY15. The significant improvement in its Fare Business was mainly due to higher ridership and average fares as well as productivity gains and disciplined cost management. Non-Fare Business’ 2QFY15 operating profit increased 4.4% YoY to S$27.2 mainly driven by taxi, rental and advertising.
Expects current level of earnings to sustain
We think the current level of earnings is sustainable if management continues to maintain profitability in its Fare Business going forward as we believe current ridership and average fares will sustain. We expect management to continue to focus on cost management mainly through efficient scheduling of drivers. With the recent oil price slide, we expect further improvements to SMRT’s Bus and Rail operating margins since electricity and diesel costs constitute an average of 16% of total expenses. Furthermore, with improved occupancy rate at 90% with an average lease period of three to six years, we believe there will be further increase in rental income from Kallang Wave Mall, contributing to revenue of Non-Fare Business going forward.
Upgrade to BUY
With the above-expectations performance in 1HFY15, and expectations of sustained earnings, we increase our FY15 and FY16 PATMI forecasts by 9.9% and 2.4%, respectively. Consequently, our DDM-derived fair value estimate increases from S$1.65 to S$1.70. With the recent drop of 4.8% in its share price since our last update on 31-Jul, we think the current price is attractive with a total potential upside of 16.5%. Hence, we upgrade from Hold to BUY rating on SMRT.
SMRT reported an impressive set of 2QFY15 results that beat our expectations. Its 2QFY15 PATMI jumped 75.5% YoY to S$25.3m on the back of a 6.0% increase in its revenue to S$314.0m. The above-expectations performance for its first two quarters led to a 5.2% increase in SMRT’s 1HFY15 revenue to S$611.1m and a 54.9% increase in its PATMI to S$47.6m. The latter formed 57.1% of our FY15 forecast and 58.9% of Bloomberg’s consensus. SMRT’s Fare Business turned profitable from operating losses of S$6.8m and S$1.1m in 2QFY14 and 1QFY15 respectively, to record an operating profit of S$5.5m in 2QFY15. The significant improvement in its Fare Business was mainly due to higher ridership and average fares as well as productivity gains and disciplined cost management. Non-Fare Business’ 2QFY15 operating profit increased 4.4% YoY to S$27.2 mainly driven by taxi, rental and advertising.
Expects current level of earnings to sustain
We think the current level of earnings is sustainable if management continues to maintain profitability in its Fare Business going forward as we believe current ridership and average fares will sustain. We expect management to continue to focus on cost management mainly through efficient scheduling of drivers. With the recent oil price slide, we expect further improvements to SMRT’s Bus and Rail operating margins since electricity and diesel costs constitute an average of 16% of total expenses. Furthermore, with improved occupancy rate at 90% with an average lease period of three to six years, we believe there will be further increase in rental income from Kallang Wave Mall, contributing to revenue of Non-Fare Business going forward.
Upgrade to BUY
With the above-expectations performance in 1HFY15, and expectations of sustained earnings, we increase our FY15 and FY16 PATMI forecasts by 9.9% and 2.4%, respectively. Consequently, our DDM-derived fair value estimate increases from S$1.65 to S$1.70. With the recent drop of 4.8% in its share price since our last update on 31-Jul, we think the current price is attractive with a total potential upside of 16.5%. Hence, we upgrade from Hold to BUY rating on SMRT.
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