Friday, 30 January 2015

SMRT Corporation

UOBKayhian on 30 Jan 2015

FY15F PE (x): 27.1
FY16F PE (x): 20.9

Good progress made in 3QFY15. SMRT’s 9M15 net profit of S$70.2m (+56% yoy) was in line with our estimates, representing 75% of full-year earnings forecast. The improvement was on the back of an increase in operating margin to 10.1% (9MFY14: 7.1%). The fare segment (bus and rail) registered a 4% yoy rise in revenue, boosted by higher ridership (2.5% yoy for trains and 4.4% yoy for bus) and higher fares. No interim dividend was declared. Maintain HOLD with a DCF-based target price of $1.73 (WACC: 7.9%, terminal growth: 3.0%). SMRT looks like it is fairly valued after rising 15% the past three months. A possible entry level would be S$1.56. We note that SMRT’s FY15 dividend yield of 2.0% and PE of 27.0x is not far off ComfortDegro’s FY14 dividend yield of 2.4% and PE of 22.0x. We expect SMRT to re-rate, should there be any further details offering clarity on the railway restructuring. However, we continue to favour ComfortDelGro for its overseas growth potential, diversification and cheaper valuations.

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