SMRT Corporation Ltd’s (SMRT) 4QFY15 PATMI grew 23.0% YoY as its bus operations recorded the first quarterly profit since 3QFY11 and non-fare business increased 18.7%; but offset by the first ever quarterly loss for train operations. Train operations incurred loss mainly on depreciation and repair and maintenance (R&M) expenses for the ageing rail system. For FY15, revenue grew 6.2% to S$1.24b while PATMI jumped 47% to S$91.0m. Our view on SMRT’s positive outlook over the longer-term remains unchanged, based on catalysts from the on-going regulatory changes of the bus and rail operating model, which could see divestment in assets and drop in depreciation expenses. With the new bus model set for implementation in FY17, core bus operations are expected to turn profitable with margins of ~7-9% thereafter. While no details are announced on the transition of rail operating model, we are encouraged that progress is being made. As we had already factored in our model for higher R&M and staff expenses, our DDM-derived FV remains unchanged at S$1.85 even as we incorporate FY15 results and introduce FY17 forecasts. Reiterate BUY on SMRT based on the compelling longer-term catalysts.
First ever quarterly loss for train operations
SMRT Corporation Ltd’s (SMRT) 4QFY15 PATMI grew 23.0% YoY to S$20.8m as its bus operations recorded the first quarterly profit since 3QFY11 and non-fare business increased 18.7%; but offset by the first ever quarterly loss for train operations. In addition to tight cost management and productivity gains, 4QFY15 PATMI grew on the back of a 7.5% revenue growth to S$311.2m on higher ridership, average fares and rental revenue. Train operations incurred loss mainly on depreciation and repair and maintenance (R&M) expenses for the ageing rail system. For FY15, top-line grew 6.2% to S$1.24b while PATMI jumped 47% to S$91.0m as it saw strong recovery momentum on rail and bus operations throughout the year, apart from 4QFY15 for train operations. As such, its FY15 revenue and PATMI formed 99.5% and only 96.1% of our forecasts.
Regulatory changes still the key catalysts
Our view on SMRT’s positive outlook over the longer-term remains unchanged, based on catalysts from the on-going regulatory changes of the bus and rail operating model. The key points to note for the new bus model, which commences from 2QFY17, are: 1) SMRT to operate buses on an asset-light model (i.e. LTA to buy SMRT buses – estimated NBV of S$300m); 2) no depreciation expenses on bus assets post-divestment; 3) no capex needed to buy new buses as obligation is on LTA under new model; and 4) core bus operations to become sustainably profitable under new model with estimated operating margins of ~7-9%. With no details and timeline announced for the new rail framework for SMRT’s network, we logically assume that it should be similar to Downtown Line rail framework. This means: 1) asset-light model (i.e. LTA to purchase train assets with NBV of ~S$1b); 2) with most of SMRT’s depreciation expenses coming from train assets, the divestment of train assets means depreciation expenses to plunge after RFF is implemented; and 3) no capex obligation to buy new train assets to meet ridership growth under new framework.
Introduce FY17 forecasts; reiterate BUY
As we had already factored in our model for higher R&M and staff expenses, our DDM-derived FV remains unchanged at S$1.85 even as we incorporate FY15 results and introduce FY17 forecasts. ReiterateBUY on SMRT based on the compelling longer-term catalysts.
SMRT Corporation Ltd’s (SMRT) 4QFY15 PATMI grew 23.0% YoY to S$20.8m as its bus operations recorded the first quarterly profit since 3QFY11 and non-fare business increased 18.7%; but offset by the first ever quarterly loss for train operations. In addition to tight cost management and productivity gains, 4QFY15 PATMI grew on the back of a 7.5% revenue growth to S$311.2m on higher ridership, average fares and rental revenue. Train operations incurred loss mainly on depreciation and repair and maintenance (R&M) expenses for the ageing rail system. For FY15, top-line grew 6.2% to S$1.24b while PATMI jumped 47% to S$91.0m as it saw strong recovery momentum on rail and bus operations throughout the year, apart from 4QFY15 for train operations. As such, its FY15 revenue and PATMI formed 99.5% and only 96.1% of our forecasts.
Regulatory changes still the key catalysts
Our view on SMRT’s positive outlook over the longer-term remains unchanged, based on catalysts from the on-going regulatory changes of the bus and rail operating model. The key points to note for the new bus model, which commences from 2QFY17, are: 1) SMRT to operate buses on an asset-light model (i.e. LTA to buy SMRT buses – estimated NBV of S$300m); 2) no depreciation expenses on bus assets post-divestment; 3) no capex needed to buy new buses as obligation is on LTA under new model; and 4) core bus operations to become sustainably profitable under new model with estimated operating margins of ~7-9%. With no details and timeline announced for the new rail framework for SMRT’s network, we logically assume that it should be similar to Downtown Line rail framework. This means: 1) asset-light model (i.e. LTA to purchase train assets with NBV of ~S$1b); 2) with most of SMRT’s depreciation expenses coming from train assets, the divestment of train assets means depreciation expenses to plunge after RFF is implemented; and 3) no capex obligation to buy new train assets to meet ridership growth under new framework.
Introduce FY17 forecasts; reiterate BUY
As we had already factored in our model for higher R&M and staff expenses, our DDM-derived FV remains unchanged at S$1.85 even as we incorporate FY15 results and introduce FY17 forecasts. ReiterateBUY on SMRT based on the compelling longer-term catalysts.
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