SMRT

SMRT: 3QFY15 net profit was in line, soaring 58.4% to $22.5m, bringing 9MFY15 net profit to $70.2m (+56% y/y) or 78% of consensus estimates. 3QFY15 revenue grew 6.8% to $313.2m, driven by growth across both fare and non-fare segments. Rail ($164.2m, +3.4%) and Bus revenue ($59.1m, +9.0%) were beneficiaries of increased ridership and average fares, while non-fare revenue ($90m, +12%) benefitted from improved rents. At the operating profit level, Rail operations clocked in operating profit of $2.4m, reversing last year’s loss ($0.2m), driven by top line with a booster from lower staff and energy costs. Bus operations narrowed last year’s operating losses by 94.7% to $0.5m. Aside top line growth, the improved performance came from lower repair and maintenance costs, as well as diesel costs. Non-fare business’ operating profit inched up 2.8% to $28m, but contributes 90% of group operating profits, due to a lower cost structure. Increased rents from positive reversions at Kallang Wave mall were offset by decreased operating profits from taxi, while engineering services swung to a net operating loss. SMRT has submitted a bid to authorities for the first package of routes tendered under the new bus contracting model, of which implementation will be in May ’16. Under the new model, profitability for bus operations is expected to significantly improve. There were no updates on the transition towards the new financing framework. The outcome materially affects SMRT, which has obligations of $2b between now and 2019. These relate to commitments for train additions to the NSL, EWL, CCL and Bukit Panjang LRT, as well as the re-signaling project on NSEWL. On that front, Maybank-KE maintains its Hold call on SMRT, with increased TP of $1.60 from $1.36, factoring increased public transport fares (+2.8%, announced 21 Jan), and lower operating costs from bus ops. SMRT is currently trading at 26.7x FY15e P/E. Latest broker ratings: Deutsche Bank maintains Buy with TP of $2.32 CIMB maintains Add with increased TP of $1.97 from $1.82 OCBC maintains Buy with increased TP of $1.90 from $1.70 UOB KayHian maintains Hold with TP of $1.73 from $1.56 Credit Suisse upgrades to Neutral from Underweight, with increased TP of $1.60 from $1.35