Monday, September 30, 2013
SMRT: Expect investor’s sentiment to take a dent, after Standard and Poor's (S&P) cuts SMRT’s rating to negative from positive, although its AAA rating was affirmed. S&P note that SMRT's financials have deteriorated more than it had expected because of larger operating expenses and high capital spending over the 12 mths to Jun13. S&P is also withdrawing its 'axA-1+' short-term ASEAN regional scale rating on SMRT. Overall, Maybank-KE has a Sell Call on SMRT with a $1.00 TP, noting that prospects remain challenging in the absence of fare adjustments and operating costs are expected to rise with wage revisions, higher headcount, and higher train maintenance and depreciation. The group is continuing its discussion with the S’pore government on how best to sustain a viable business model with a new rail/bus financing and operational framework but no time-line has been given on the outcome of the talks. At the current price, SMRT trades at 22x forward P/E versus ComfortDelgro’s 16x.