SMRT

SMRT: 3QFYMar13 results fall short. Net profit at $26m, -31% yoy, -23% qoq, despite revenue rising 5% yoy to $281.7m on the back of higher fares and improved ridership trends. Operating margins remain under pressure, in lieu of rising operating expenses in MRT and bus losses. Notably, staff costs rose 18% yoy to $98.5m, on account of increased headcount and higher basic salaries, while repair and maintenance expenses rose 29% to $27m due to the Circle Line and increased repair & maintenance schedule for trains, as well as a larger bus and taxi fleet. Outlook continues to look cloudy, as mgt expects staff costs, depreciation and maintenance costs to continue to rise significantly moving forward. Mgt also expects capex to be significant in FY4Q, on the back of the takeover of operating assets in Changi and Dover, as well as train maintenance and fleet expansion. At 17.1x fwd P/E, Deutsche believes valuation is only fair, given few near term catalysts. Keeps at Hold with TP $1.59. Maybank KE sees no light at the end of the tunnel yet for SMRT, reiterates its Sell rating, and trims TP to $1.34 (from $1.37) to account for further operating expense increases. Advises investors looking for transport-related yield plays to consider switching to other sectors like aviation services where industry fundamentals present a rosier environment than that currently facing the Singapore land transport operators.