SMRT

SMRT: 1Q FYMar11 results were below mkt expectations with net profit of $38.2m fell 21% YoY as costs escalated. In particular, fuel costs spiked 29% YoY due to increased train runs from Circle Line, which remained underutilised. Although CCL daily average ridership has risen from 124,000 since Stages 1&2 started on 17 Apr to 145,000, this is below the 200,000 target. SMRT expects the line to operate at a significant loss over the next 12 mths.

Labour costs are also expected to continue to rise this year given the current tight labour market. Meanwhile, the implementation of the distance-based fare system is likely to put downward pressure on average fares. While the switch was only made from 3 July, the impact so far has been negative, according to management. Kim Eng has cut its FY11 forecast further by 20%. At 24x PE, maintain SELL with target price of $1.57 (based on 17x earnings). We prefer ComfortDelgro at 15x earnings.