SMRT

SMRT: A major market concern over SMRT is now finally out of the way. LTA announced last week that a financial penalty of $5.4m will be imposed on SMRT for the 7 Jul system-wide disruption on North-South and East-West Lines (NSEWL). After thorough investigations, LTA concluded that the disruption could have been prevented if not for SMRT’s maintenance lapses.

Coupled with the fine, OCBC believes SMRT has learned its lesson and expects it to ramp up maintenance processes to prevent future lapses. Also, with a common interest of ensuring minimal rail services disruption going forward, rail reform will free up SMRT’s free cash flow by removing SMRT’s capex obligation and allows it to focus on ramping up maintenance processes.

House believes with Singapore’s GE15 over and the new transport minister appointed, it does not rule out the possibility that the rail reform could potentially be accelerated. Keeping forecasts unchanged, OCBC reiterates BUY with TP of $1.45.