SMRT

Kim Eng on 2 May 2012

FY2012 results in line; dividend cut. SMRT reported core FY2012 profit of SGD141.5m, in line with expectations and representing a 12% dip YoY. Core earnings exclude one-off impairment of goodwill related to their bus business1 recognised in 4Q12. Final dividend of S 5.7 cts was declared, bringing total DPS for FY12 to S 7.45 cts (80% of core EPS), a drop of 12% vs FY11. We maintain our SELL call on the stock,
with the uncertain outlook on several repair, maintenance and capex sharing issues weighing in with increasing staff and energy cost pressures.

Transport on decline, rental and ads pick-up. SMRT's FY12 train and bus operating profits reported significant declines YoY at (-20%,- SGD22.5m) and (-570%,-SGD9.9m) respectively. Profits were hit by higher energy, staff and depreciation costs. Rental and advertising profit picked up the slack, increasing 11% to contribute FY12 operating profit of SGD82.1m, which is now slightly higher than the operating profit of the entire train, bus and taxi segments put together (at SGD81.8m).

The SGD900m question and other quandaries. Management was unable to shed further light on cost-sharing arrangements with the LTA on the SGD900m upgrading plan for the rail network. They elaborated that most of the capex will be back-loaded within the 8-year scheme, with the bulk coming from Line Re-sleepering and Re-signalling upgrades. Further capex could also result from the current Committee of Inquiry hearings and could worsen the company’s cashflow position.

Few positives on the horizon, maintain SELL. We maintain our SELL call on SMRT, pegged to 15x FY13 PER on the challenging operating environment going forward. While dividend yield of 4.5% could continue to support the stock on the downside, future payouts appear less certain in quantum and investors used to its historically steady, increasing payouts should be mindful of this fact.