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SMRT - DBS Research 2016-07-19: Temasek reportedly mulling buyout of SMRT

SMRT - DBS Research 2016-07-19: Temasek reportedly mulling buyout of SMRT SMRT CORPORATION LTD S53.SI 

SMRT - Temasek reportedly mulling buyout of SMRT

  • Temasek said to be contemplating buyout offer for SMRT.
  • Potential offer could derail our current fundamental- based investment thesis.
  • Assumed 30% premium to our current TP equates to 8% premium to last traded price.
  • Putting our last recommendation Under Review pending further developments.


WHAT'S NEW

  • According to news reports, Temasek is said to be weighing the option of taking SMRT private.
  • The potential valuation is unclear given that with the unveiling of the New Rail Financing Framework, we are projecting that SMRT's profits will drop a notch down given the cap on margins for its SMRT train operations (inclusive of rental and advertising under trains).
  • We have just revised down our forecasts and trimmed our recommendation (to FULLY VALUED, TP: S$1.28, from HOLD, TP: S$1.53). The potential buyout offer will derail our thesis, which was based on a fundamental perspective.
  • Assuming a minimum 20% premium to our TP, this leaves a marginal premium to its last traded price. A higher premium is unlikely as this will equate to a very high valuation, considering that SMRT’s profitability is projected to be subdued under the New Rail Financing Framework.
  • At this juncture, our take is for a probable 25-30% premium to our TP as it will entail a marginal premium to its last traded price of S$1.545.
  • We are putting our recommendation Under Review, pending further developments.




Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-19
DBS Vickers SGX Stock Analyst Report UNDER REVIEW Downgrade FULLY VALUED 1.28 Down 1.53


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