SMRT

SMRT: Continues its downward dive as net profit came in at $16.3m (-55% y/y, net loss q/q) despite revenue inching up to $284.8m (+3% y/y, +1% q/q). The mildly higher top-line was due mainly to higher train (+25), rental (+9%) and taxi revenue (+6%), however operating profits tumbled 49% with operating margins slumping 8.2 ppt to 7.8%, as continued increase in operating expenses for the fare business was not being offset by fare increases, resulting in lower train profits and higher bus and LRT losses. Operating expenses rose 11% to $272.1m mainly due to higher staff costs and depreciation. Staff costs was up 23% due to increased headcount, although this was partially offset by the Wage Credit Scheme, while depreciation net amortization rose 12% due to the capitalization of operating assets taken over from LTA and a larger bus and taxi fleet. Repairs and maintenance costs rose 4% with more scheduled repairs and maintenance. Going forward, SMRT notes that the next twelve months remain challenging for the group in the absence of fare adjustments and continuing absorption of fare concessions. Operating costs are expected to increase with the annual wage increment and higher headcount, higher trains repair and maintenance, and depreciation from additions of trains operating assets as well as a larger bus and taxi fleet. The Group aims to continues its discussion with the S’pore government on a new rail financing framework, with aims of a smooth transition which will improve the overall sustainability of the Trains business. We note that net gearing has risen substantially, at 64% versus 8% y/y, which could raise some investor’s concern. Majority of the street continues to take a negative and/or neutral view on the counter, with no signs of any ‘turnaround’ in fortunes in the near-term. At current price, SMRT trades at 25x forward P/E versus closes peer Comfort Delgro of 16.3x. Latest brokers ratings as follows: Maybank-ME maintains Sell with $1.00 TP CIMB maintains U/p with $1.24 TP Deutsche maintains Hold with $1.57 TP Nomura maintains Reduce with $1.16 TP OCBC downgrades to Sell with $1.30 TP UOB Kay Hian maintains Sell with $1.02 TP