SMRT Corporation Ltd’s (SMRT) 1QFY16 results were disappointing as PATMI declined 10.0% YoY to S$20.1m on the back of a 5.6% drop in operating profit to S$27.7m, even though revenue grew 7.8% to S$320.3m. 1QFY16 fare business revenue grew 6.0% YoY on higher ridership and average fares while revenue of non-fare business grew 12.7% mainly driven by taxi and rental segments. Rail operations incurred operating loss while bus operations turned profitable. Taxi and rental operating profits grew, but we note rental margin came down 13.4 ppt with full quarter contribution from Kallang Wave Mall. We expect the higher expenses to remain as SMRT renews its ageing rail network, causing some drag to its earnings in the near term. However, we remain positive over the longer-term catalysts driven by regulatory changes that are likely favourable for SMRT. Incorporating 1QFY16 results and assumptions for higher expenses, our FV consequently drops to S$1.70 (prev: S$1.75). Reiterate BUY, as we see the decline in share price being overdone.
Loss from train operations continues into 1QFY16
SMRT Corporation Ltd’s (SMRT) 1QFY16 results were disappointing as PATMI declined 10.0% YoY to S$20.1m on the back of a 5.6% drop in operating profit to S$27.7m, even though revenue grew 7.8% to S$320.3m. 1QFY16 fare business revenue grew 6.0% YoY on higher ridership and average fares while revenue of non-fare business grew 12.7% driven mainly by taxi and rental segments. Despite revenue growth, rail operations incurred an S$5.7m operating loss in 1QFY16 compared to S$4.3m profit in 1QFY15, mainly due to higher repairs and maintenance (R&M) and staff expenses required to support the ageing network. Compared with S$5.5m operating loss in 1QFY15, bus operations recorded a profit of S$1.5m in 1QFY16 mainly due to higher revenue and lower diesel costs. 1QFY16 taxi operating profit grew 32.2% YoY to S$5.5m on larger fleet while rental operating profit rose 5.3% to S$21.1m with contribution from Kallang Wave Mall (KWM), but rental operating margin declined 13.4 ppt to 64.2%.
Expects near-term weakness with increase in expenses
Management noted 1QFY16 R&M expenses level is likely to sustain for the next two to three years as renewal works on the ageing rail system takes place. Staff expenses, as highlighted previously, will continue to increase, mainly on engineers, technicians and bus captains. We expect these higher expenses to continue to be a drag on SMRT’s earnings, at least in the near-term, and also adjusted our forecasted margins for rental contribution from KWM. We are still positive over the longer-term as catalysts remain intact. We expect SMRT to benefit from the new bus government contracting model (GCM) and rail financing framework (RFF). We think SMRT’s bus operations will improve materially on better margin from 2QFY17 onwards under the new GCM. The expected absence of depreciation expenses should help as well. While RFF timeline is unclear, it is encouraging to note progress is being made.
Outlook in FY17 is better due to regulatory changes; reiterate BUY
Incorporating 1QFY16 results, we further increase our operating expenses forecasts, which reduce our FY16/17F PATMI by 12.3/10.6%. Noting positive longer-term outlook driven by regulatory changes, we reiterate BUY, with a lower FV of S$1.70 (prev: S$1.75).
SMRT Corporation Ltd’s (SMRT) 1QFY16 results were disappointing as PATMI declined 10.0% YoY to S$20.1m on the back of a 5.6% drop in operating profit to S$27.7m, even though revenue grew 7.8% to S$320.3m. 1QFY16 fare business revenue grew 6.0% YoY on higher ridership and average fares while revenue of non-fare business grew 12.7% driven mainly by taxi and rental segments. Despite revenue growth, rail operations incurred an S$5.7m operating loss in 1QFY16 compared to S$4.3m profit in 1QFY15, mainly due to higher repairs and maintenance (R&M) and staff expenses required to support the ageing network. Compared with S$5.5m operating loss in 1QFY15, bus operations recorded a profit of S$1.5m in 1QFY16 mainly due to higher revenue and lower diesel costs. 1QFY16 taxi operating profit grew 32.2% YoY to S$5.5m on larger fleet while rental operating profit rose 5.3% to S$21.1m with contribution from Kallang Wave Mall (KWM), but rental operating margin declined 13.4 ppt to 64.2%.
Expects near-term weakness with increase in expenses
Management noted 1QFY16 R&M expenses level is likely to sustain for the next two to three years as renewal works on the ageing rail system takes place. Staff expenses, as highlighted previously, will continue to increase, mainly on engineers, technicians and bus captains. We expect these higher expenses to continue to be a drag on SMRT’s earnings, at least in the near-term, and also adjusted our forecasted margins for rental contribution from KWM. We are still positive over the longer-term as catalysts remain intact. We expect SMRT to benefit from the new bus government contracting model (GCM) and rail financing framework (RFF). We think SMRT’s bus operations will improve materially on better margin from 2QFY17 onwards under the new GCM. The expected absence of depreciation expenses should help as well. While RFF timeline is unclear, it is encouraging to note progress is being made.
Outlook in FY17 is better due to regulatory changes; reiterate BUY
Incorporating 1QFY16 results, we further increase our operating expenses forecasts, which reduce our FY16/17F PATMI by 12.3/10.6%. Noting positive longer-term outlook driven by regulatory changes, we reiterate BUY, with a lower FV of S$1.70 (prev: S$1.75).
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