- 2Q above on better costs. Fare-based business reverted to +SGD5.5m EBIT, lifting net income by 76% YoY to SGD25.3m.
- EPS raised by 82%. Still, stock could stay range-bound in absence of clarity over rail transition.
- Maintain HOLD & base-case SGD1.36 TP.
2QFY3/15 net income rose 75.5% YoY to SGD25.3m as its fare-based business reverted to operating profits of SGD5.5m from SGD6.8m losses. This was aided by stronger cost control and higher fares since Apr 2014. Interim DPS was raised to 1.5 SGD cts from 1 ct a year ago. 1H EPS forms 70% of our original forecast.
Rising staff costs at its rail segment appear to have been reined in with a stabilising headcount and productivity measures. Along with falling oil prices, energy costs declined 8.7% YoY. Bus depreciation charges declined 2.0% YoY as the estimated useful life of its buses was raised. While plans to develop its engineering arm are positive, we do not think contributions will be significant, near term.
No updates on rail transition were provided.
…but not a stock driver; Maintain HOLD.
We raise FY3/15E-17E EPS by 82% to reflect its better-than-expected cost trends. While its better profitability is a positive, we expect the stock to remain range-bound in the absence of clarity on the rail transition. Hence, our unchanged HOLD rating and base-case TP of SGD1.36. We have assumed: 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) 10% margins for bus and rail, including rental margins after transition
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