SMRT Corporation

UOBKayhain on 31 Jul 2014

FY14F PE (x): 26.6
FY15F PE (x): 20.1
No surprises in 1QFY15. 1Q15 net profit of S$22.4m (+37% yoy) came in within our
expectations, accounting for 25% of our full-year forecast. Turnover grew 4.3% yoy,
with higher revenue across all key segments. The fare segments (bus and rail)
registered a 4% rise in turnover, boosted by higher ridership (+1.9% yoy for trains and
+4.3% yoy for bus) as well as a fare increase of 1.6% since Apr 14.
Still no clarity on new rail financing framework but likely to be accretive. SMRT has
submitted proposals to the government and continues to engage the authorities.
Although a change to the rail financing framework is imminent, the lack of details
makes it difficult to assess the outcome for SMRT. We estimate that SMRT has about
S$1b of rail-related assets and we believe the bulk is being considered for repurchase
by the government. A key question however would be the price that the authorities will
pay for the assets as well as the amount of licensing fees to be imposed on SMRT
following its 3.0 asset sale. Nevertheless, management highlighted during the analyst
briefing that they 2.5 are confident of structuring a win-win solution with the authorities
on this but no timeline 2.0 for the completion was provided. Maintain HOLD with a
higher DCF target price of $1.53