SMRT announced that its 3Q12 revenue gained 10% YoY (+2.7% QoQ) to S$268.2m on the back of higher MRT and bus ridership. However, higher operating expenses offset this growth with a S$31.4m or 16% YoY (+1.8% QoQ) increase, and reduced net profit to S$37.0m or -13.9% YoY (+8.6% QoQ). Going forward, we expect operating expenses to remain elevated and tweaked our net profit estimates lower by 4%. Despite the challenging outlook, management has confirmed our previous assertion and reiterated its commitment to maintain its dividend payout policy. Although selling pressure will likely persist in the interim following its lacklustre 3Q12 results, we believe an attractive entry point for SMRT has emerged especially with its FY12F dividend yield of 4.5%. Maintain BUY at an unchanged fair value estimate of S$2.04.
Similar story in 3Q12. SMRT announced that its 3Q12 revenue gained 10% YoY (+2.7% QoQ) to S$268.2m on the back of higher MRT and bus ridership. However, higher operating expenses – mainly due to electricity and diesel costs, repairs and maintenance costs – offset this growth with a S$31.4m or 16% YoY (+1.8% QoQ) increase, and reduced net profit to S$37.0m or -13.9% YoY (+8.6% QoQ). SMRT’s 3Q12 revenue did not disappoint as it came in within 1% of our estimates but the surge in operating expenses caused our bottom-line estimates to deviate by 18%.
Going forward – operating expenses to remain high. With diesel prices on an uptrend recently, SMRT could see its energy costs increase after its diesel hedge ends this month. Furthermore, an anticipated increase in the number of train runs in the face of higher ridership is also expected to negate any potential cost savings from its electricity hedge, which ends in Sep 2012. Similarly, staff costs will increase following a seasonal bump from merit increments in 4Q while management adds headcount to fulfil additional service requirements. As such, we tweaked our net profit estimates lower by 4%.
Dividend payout policy unchanged. Despite its recent woes and higher operating expenses, management has confirmed our previous assertion and reiterated its commitment to maintain its dividend payout policy.
Downward pressure will persist but dividend play remains. With an uninspiring 3Q12 performance, consensus estimates for SMRT’s FY12 earnings will likely come off. Coupled with lingering concerns over possible penalty payments and increases to maintenance expenses upon the conclusion of the Committee of Inquiry’s (COI) investigations, we expect further selling pressure on its shares in the interim. However, with a fall of 1.7% (vs. +9.8% of STI) since the start of the year and an unchanged dividend policy (FY12F dividend yield 4.5%), we believe an attractive entry point for SMRT has emerged. Maintain BUY at an unchanged fair value estimate of S$2.04.
Going forward – operating expenses to remain high. With diesel prices on an uptrend recently, SMRT could see its energy costs increase after its diesel hedge ends this month. Furthermore, an anticipated increase in the number of train runs in the face of higher ridership is also expected to negate any potential cost savings from its electricity hedge, which ends in Sep 2012. Similarly, staff costs will increase following a seasonal bump from merit increments in 4Q while management adds headcount to fulfil additional service requirements. As such, we tweaked our net profit estimates lower by 4%.
Dividend payout policy unchanged. Despite its recent woes and higher operating expenses, management has confirmed our previous assertion and reiterated its commitment to maintain its dividend payout policy.
Downward pressure will persist but dividend play remains. With an uninspiring 3Q12 performance, consensus estimates for SMRT’s FY12 earnings will likely come off. Coupled with lingering concerns over possible penalty payments and increases to maintenance expenses upon the conclusion of the Committee of Inquiry’s (COI) investigations, we expect further selling pressure on its shares in the interim. However, with a fall of 1.7% (vs. +9.8% of STI) since the start of the year and an unchanged dividend policy (FY12F dividend yield 4.5%), we believe an attractive entry point for SMRT has emerged. Maintain BUY at an unchanged fair value estimate of S$2.04.
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