Kim Eng Research 20 Dec
Rail defects, faulty trains. Three train disruptions in four days have led the Land Transport Authority (LTA) to order SMRT Corp to observe certain restrictions, effective yesterday. These included reduced train frequency during morning peak periods and slower speeds along certain stretches of the rail network. The measures followed an inspection of the affected tracks and trains by SMRT and LTA officers, which uncovered 61 rail defects and 13 faulty trains.
Government takes a serious view. Prime Minister Lee Hsien Loong has ordered a public inquiry. We understand that a formal Committee of Inquiry will be convened soon, similar to that which was formed after the collapse of Nicoll Highway on 20 April 2004. The committee will comprise some members of the independent team of technical experts and will be assembled by Transport Minister Lui Tuck Yew. It is expected to make its findings public in the next couple of months.
Earnings to take a hit. We lower our FY Mar12-14 EPS estimates by 2-3% as repair and maintenance costs (about 9% of 1HFY Mar12 fare revenue) will likely increase. Other one-off expenses that will be incurred include refunds and provision of free shuttle bus services to help affected passengers, as well as possible punitive fines by LTA of up to $1m under the Rapid Transit Systems Act.
No shoo-in with LTA? The long-term complications associated with repeated service disruptions cannot be underestimated, in our view. Plans are afoot to build two additional lines, the Thomson Line (TSL) and the Eastern Region Line (ERL), and the government has given the go-ahead for the TSL to be built by 2018 and the ERL by 2020. Even though the bids to operate the new lines are not yet open, we believe LTA will take the recent train incidents into consideration, particularly service reliability, when awarding the tenders in the future.
Possible dividend cut. We forecast a 0.5 cents cut in dividend payout to $0.08 along with the decline in earnings. We downgrade the stock to Sell with the reduced target price of $1.50, based on 15x blended FY Mar12F/13F PER (the same multiple we apply to ComfortDelgro).
Rail defects, faulty trains. Three train disruptions in four days have led the Land Transport Authority (LTA) to order SMRT Corp to observe certain restrictions, effective yesterday. These included reduced train frequency during morning peak periods and slower speeds along certain stretches of the rail network. The measures followed an inspection of the affected tracks and trains by SMRT and LTA officers, which uncovered 61 rail defects and 13 faulty trains.
Government takes a serious view. Prime Minister Lee Hsien Loong has ordered a public inquiry. We understand that a formal Committee of Inquiry will be convened soon, similar to that which was formed after the collapse of Nicoll Highway on 20 April 2004. The committee will comprise some members of the independent team of technical experts and will be assembled by Transport Minister Lui Tuck Yew. It is expected to make its findings public in the next couple of months.
Earnings to take a hit. We lower our FY Mar12-14 EPS estimates by 2-3% as repair and maintenance costs (about 9% of 1HFY Mar12 fare revenue) will likely increase. Other one-off expenses that will be incurred include refunds and provision of free shuttle bus services to help affected passengers, as well as possible punitive fines by LTA of up to $1m under the Rapid Transit Systems Act.
No shoo-in with LTA? The long-term complications associated with repeated service disruptions cannot be underestimated, in our view. Plans are afoot to build two additional lines, the Thomson Line (TSL) and the Eastern Region Line (ERL), and the government has given the go-ahead for the TSL to be built by 2018 and the ERL by 2020. Even though the bids to operate the new lines are not yet open, we believe LTA will take the recent train incidents into consideration, particularly service reliability, when awarding the tenders in the future.
Possible dividend cut. We forecast a 0.5 cents cut in dividend payout to $0.08 along with the decline in earnings. We downgrade the stock to Sell with the reduced target price of $1.50, based on 15x blended FY Mar12F/13F PER (the same multiple we apply to ComfortDelgro).
No comments:
Post a Comment