Maybank Kim Eng, Jan 29
SMRT reported another disappointing set of numbers for Q3 FY2013/14, with net profit plunging 44 per cent y-o-y to $14.2 million. The combined operating loss for its fare-based business stood at $9.0 million, reflecting the challenging business environment for public transport operators. On the bright side, Q3 FY2013/14's rental profits improved 9.2 per cent y-o-y to $18.5 million.
We maintain our negative view on the stock. While the fare increase from April 2014 would give SMRT an estimated net benefit of $13.2 million per annum, or $3.3 million per quarter, we do not think this is enough to offset losses in view of the current run-rate of $9 million per quarter for its fare business. Furthermore, SMRT faces the threat of cannibalisation when Stage 2 of the Downtown Line opens in 2016, which puts approximately 17 per cent of its fare revenue at risk.
While transiting to a sustainable business model for its train and bus operations appears imminent, we argue that it is highly speculative to conclude that the transition terms will be favourable to shareholders. Our TP of $0.60 is based on 14x FY3/2014-2016E P/E. Maintain "sell".
SELL
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