SMRT - Results largely in line

Reiterate BUY rating at fair value estimate of S$1.92. The full year results for FY2009 announced recently were largely inline with our estimates. The Group produced relatively good results as well as a final dividend proposal of 6 cents per share. We have adjusted our operating expenses slightly thus our discounted free cash flow to equity model eased our fair value estimate to S$1.92 (previously S$1.97).

Growth delivered in earnings for FY2009. The Group announced growth in revenue of 9.6%, from S$808.12 million in FY2008 to S$878.95 million in FY2009; and registering growth in net profit after income tax of 8.5%, from S$149.94 million in FY2008 to S$162.73 million in FY2009 on the back of higher operating profits coupled with government budget measures. The Group attributes the growth in revenue to mainly higher train and bus ridership, higher rental and advertising revenue, increased consultancy revenue and higher project management fees. MRT ridership increased 8.7% to 510.2 million together with a full year ridership growth of 3.9% to 288 million for buses. The taxis segment however, suffered a full year operating loss due mainly to higher loss on disposal of taxis.

The rental segment achieved a growth of 37.0% from S$41.98 million in FY2008 to S$57.53 million in FY2009 due mainly to better yield and increased space following the redevelopment of commercial spaces at various MRT stations. Advertising revenue increased 13.8% from S$19.81 million in FY2008 to S$22.54 million in FY2009, mainly due to increased advertising on buses, taxis, trains and at MRT stations. Revenue from Engineering and Other Services increased as well. From S$23.54 million in FY2008 to S$36.46 million in FY2009 due mainly to increased consultancy revenue, higher diesel sales and higher project management fees from the Palm Jumeirah Project in Dubai.

Rise in operating expenses. The Group’s expenses increased by 11.2% from S$644.95 million to S$716.94 million. This was due to a rise in staff and related costs of S$13.9 million (5.3%) in FY2009, increase in depreciation by S$4.3 million (4.0%), higher repair and maintenances costs by S$3.1 million (5.0%), electricity and diesel costs increasing by S$29.1 million (32.4%) and an increase in other operating expenses by S$21.6 million (17.6%) in FY2009.

Circle Line Stage 3 commencing in May 2009. The rolling out of the circle line in May this year should seek to increase ridership further although we do also believe that this should lead to higher expenses in the coming first quarter 2010 due mainly to higher staff and related costs, as headcount is expected to increase for the circle line launch.

Final dividend proposed. The Board of Directors proposed a final ordinary dividend of 6.00 cent per share, totaling S$91.0 million. The final dividend, if approved, will bring the total dividend per share to 7.75 cents for the year.

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