SMRT

Kim Eng on 1 Feb 2012

No major surprises. SMRT’s 3QFY Mar12 results were in line with our expectations but slightly below market
consensus. Net profit fell by almost 14% YoY to $37.0m, weighed down by higher energy and other operating
expenses. Looking ahead, management expects the profitability of its train operations to be impacted by the
increased costs arising from the recent MRT service disruptions. Reiterate Sell.

Challenging earnings outlook. Persistent cost pressure remains our biggest concern as SMRT’s EBIT
margin narrowed by 4.6ppt to 16.7% in 9MFY Mar12 compared to 21.3% a year ago. The permanent spike in repair and maintenance expenses in subsequent quarters will put another dampener on its bottomline.
Management also cautioned that its bus business could be further impaired if diesel prices were to stay at
their current high levels.

CCL may face plateaued ridership. Particularly disappointing was the fact that average weekday ridership
for the Circle Line (CCL) stayed stagnant QoQ at around 300,000. While management is still guiding for a
breakeven daily ridership of 400,000 to be achieved within 6-9 months from the opening of the final 12
stations of CCL last October, we think that this projection now seems overly optimistic as the gestation period
could be much longer than expected.

Taxi and rental business divisions shine. On the bright side, its taxi segment performed better than
expected, with revenue jumping by 28.4% YoY to $29.6m due mainly to higher fees from a larger average
hired out fleet. Rental income from commercial spaces rose by 11% YoY to $20.7m as a result of the increase
in leasable area following redevelopments at several MRT stations. Average occupancy rate has also
improved to 98.2% from 96.4% in the last quarter.

No catalyst in sight. We trim our FY Mar12F-14F forecasts by 3-4% to take into account a lower ridership
growth assumption. However, our target price is unchanged at $1.50 after rolling forward the valuation to
FY Mar13F PER of 15x. We maintain our Sell recommendation on SMRT in view of its relatively expensive
valuations and tepid earnings growth prospects.