SMRT

SMRT: 2QFY15 results beat consensus. Net profit rose 75.5% to $25.3m, while topline grew 6% to $314m, with increases from all segments except LRT and Engineering services. Fare-based business operating profit was $5.5m (2QFY14: $6.8m operating loss), on higher riderships and fares since Apr’14. Train operating profit jumped $6.6m to $7.6m (4.2% op margin), while bus operating loss narrowed from $74m to $1.4m. Non fare operating profit increased 4.1% to $4.8m, mainly driven taxi ops, rental, and advertising segments. Interim DPS of 1.5¢ (1HFY14: 1¢) Deutsche notes that SMRT remains focused on productivity gains such as headcount reduction in non-operational areas. In addition, management continues to look for investment opportunities, such as its recent JVs with Toshiba (Singapore Rail Engineering) and Hailo (mobile taxi booking app). Sustained lower oil prices could translate into lower electricity and diesel costs. That said, Maybank-KE thinks that stock price might remain range bound on the absence of clarity voer the rail transition, and as such keeps TP unchanged at $1.36 with the following assumptions: 1) Rail and bus operating assets will be sold to regulators for $1b 2) Contractual agreements under previous regime will be written off 3) 10% margins for bus and rail, includinfg rental margins after transition. SMRT is trading at 2.7x FY15e P/B and 24.7x FY15e core P/E. Latest broker ratings: Deutsche maintains Buy with TP of $1.90 Maybank-KE maintains Hold with TP of $1.36