No surprises, REDUCE maintained
- Revenue was 11.6% higher than consensus expectations, while PATMI missed consensus by more than 5%.
- Second consecutive quarter of core Rail operating loss and overall Fare business operating loss. (Losses from Rail wiped out profits from Bus.)
- Margins continue to compress, as fleet/network expansion, higher operating standards and maintenance of an aging network continues to weigh on costs.
What is the news?
- SMRT Corp Ltd ("SMRT") announced its 1Q FY16 (Y/E Mar) results on 30 July after trading hours, followed by the Analyst & Media Briefing teleconference earlier this morning.
Analyst briefing key takeaways
- Management guided that Staff cost is expected to increase further. It had increased 8.3% yoy and 6.3% qoq due to expanded train and bus fleet. It is expected to increase further as the rail and bus network continues to expand and headcount increases.
- R&M will be on an increasing trend as SMRT remains committed to the multi-year programmes to upgrade and renew the ageing rail network.
- Taxi business remains stable. Taxi fleet rental is high at 98% and SMRT is "not seeing any material impact" due to third-party taxi apps.
- Average Train Fare has been increasing but.. it could face threats with the opening of Downtown Line 2, as ridership could be diverted from SMRT's NSEWL to DTL2. DTL2 (operated by SBS Transit) runs parallel to a section of the NSEWL, which SMRT operates.
How do we view this
No surprises in the results.
- 1Q FY16 Revenue and PATMI met 24.9% and 24.7% respectively, of our full year FY16e forecast.
Operating expenses continue to weigh against profitability.
- Operating expenses rose 10.1% y-o-y, out-pacing the 7.8% y-o-y increase in revenue. The two largest cost components (Staff costs & Depreciation) are expected to increase further due to higher headcount and fleet/network expansion.
Operating margin for Rental should be stable going forward.
- As we had highlighted in the previous quarter's report, EBIT margin used to be mid-70%, but has fallen to mid- 60%. This is due to the sublease structure of the Kallang Wave Mall. After going through four quarters of yoy compression, we expect to see stabilisation of operating margin going forward.
Investment Actions
- We have made adjustments to our estimates for Other Operating Expenses, associated with Kallang Wave mall for FY17e onwards.
- Maintain "Reduce" rating on SMRT, with new lower target price of S$1.320. (Previous: S$1.370)
(Richard Leow, CFTe)
Source: http://www.poems.com.sg/
