Train revenue was flat despite 5% higher ridership while Bus revenue fell 4% YoY due mainly to fare cuts from 1 Apr 2009. Taxi revenue fell almost 7% YoY due to a 12% reduction in fleet size. However, EBITDA margin improved 5%-points to 40% due mainly to lower fuel and electricity costs. Train profit was boosted by the non-operating gain, while Bus operations turned around to profitability on lower diesel costs.
Despite the recessionary environment, rental income continued to grow (+21% YoY, +11% QoQ), above management’s previous guidance of a flat performance for 2010. SMRT was able to keep rental rates steady as its high-traffic train stations continued to be preferred tenant locations, while improving lettable area – two additional stations were upgraded in 1Q10, with another five to be upgraded in 2Q10.
We continued to expect loss of revenue from fare cuts and transfer rebates as well as higher costs due to Circle Line to exceed Budget savings. So far, CCL ridership is below expectations (30,000 daily vs 45-55,000 targeted) and the opening of stages 1 and 2 in mid-2010 is still not expected to be enough for the line to break even. Shenzhen Zona, the first overseas M&A, has materialised but is not expected to contribute materially for 3-5 years.
Cost pressures point toward a cap on growth in the short term. With a double digit PE , we can only justify a Hold recommendation at this time. However, dividend yield is relatively decent at 5%, while CCL will be positive in the long run, with breakeven expected in 2012. Additional overseas M&A could also be a catalyst; SMRT has in fact recently hired a senior business development VP for Europe and China.
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