SMRT

SMRT: disappointing 4Q/FY12 results. Full year net profit was $120m, -26% yoy, while 4Q12 net profit was $13.9m, -59% yoy. This was mainly due to a $22m impairment of goodwill on the bus business (SMRT had previously warned about this, without specifying the amount). However, the big disappointment came in the form of a cut in dividend, with full year DPS now at 7.45cts, vs 8.5cts in FY11. previously, SMRT committed to maintain an absolute level of dividends, hence this departure from policy is a negative surprise for yield investors. This change was likely motivated by expected capex ($500m) vs sh/h equity ($791m) and annual EBITDA of~$300m. Meanwhile, SMRT disclosed it is in preliminary discussion with LTA on a new financing framework, in which SMRT pays the govt an operating lease instead of owing train assets. This could help reduce strain on SMRT’s balance sheet, as the FY13 guidance capex of $500m would hike gearing to ~70%, leaving limited room for funding other large capex programs. UBS reiterates Sell with TP $1.41. Says a P/E de-rating is warranted, with operating conditions to remain difficult as ridership revenue growth is not strong enough to offset rising costs (eg fuel and staff), while the govt’s push for higher rail capacity means structurally lower margins going forward. JPM downgrades to Neutral from overweight, cuts TP to $1.60 from $2, as its original yield thesis is no longer valid.