SMRT

SMRT: 1Q12 results below expectations as net profit fell 8.9% yoy to $34.8m despite a 7.5% revenue increase yoy to $253m. The lowered margin was attributed to a sharp increase in electricity and staff costs, up 32.7% and 10.9% yoy respectively.

Circle Line daily ridership remained stagnant at 181k, still below the estimated 200k breakeven point. Increased costs are also expected as SMRT ramps up train runs and recruitment for the opening of Circle Line stages 4 & 5. While mgt is optimistic that ridership will increase with the new stages, estimated breakeven traffic would also rise to 500k.

In addition, advertising margins contracted to a long-term low of 55%, indicating that the shift towards digital advertisements has negatively impacted profitability for this segment.

Taxi revenues +15% to $21m as fleet size increased to 2,990 (from 2,600). Rental segment reported +11% revenue as monthly rental rates were +8% yoy to $18.9psf. Coupled with steady occupancy rates of 98%, and margins, profit was also up 11% to $15m.

Going ahead, SMRT has plans for a $600m capex on 17 new trains and 355 taxis and will probably tap the medium term note for funds. This should push gearing to 50% from ~30% currently.
Given SMRT’s poor execution with the Circle Line so far, the Street remains cautious should the co be awarded the tender in future.

Stock currently trades at 18.3X P/E. Street is mostly neutral or negative, with TP ranging $1.59 - $1.90. Macquarie recommends a switch into Comfort DelGro, which is at a 60% discount to SMRT.