SMRT - Ridership figures could have a lag in the recovery in GDP

Weak start at Circle Line due to poor connectivity however mgmt expects impact to be minimal. SMRT average daily rail and bus ridership in Aug09 grew by 1.6% YoY and -1.2% YoY to 1.4m and 0.8m, respectively. The trend has been weaker than expected due to poor ridership at its core North East South West (NSEW) lines as a result of the slowing economy.

In addition, ridership at Circle Line (CCL) has been below our expectations of 55k in average daily ridership. Stripping out CCL ridership of more than 30k in average daily ridership, the core ridership at NSEW lines would have declined by 0.5% YoY. YTD SMRT's ridership for rail grew at 2.6% YoY and bus at -0.7% YoY.

Revised our ridership forecast downwards. We have revised our FY09E ridership forecasts for rail from 6.4% YoY to 3.5% YoY and bus from 0.8% YoY to -0.5% YoY. We have revised our earnings downwards by 2-3% in FY10-12E to account for the lower ridership in our forecasts partially offset by higher rental revenue assumptions (due to the redevelopment of five MRT stations), lower staff costs, lower depreciation and higher EBIT contribution from bus and taxi divisions.

Lowered our TP from S$2.05 to S$2.00; Buy. SMRT offers a defensive yield of 5.0%. Our revised target price is based on our DCF valuation using a COE of 7.5% and a TGR of 1.0%. Our S$2.00 TP implies a PE of 17.0x FY10E. Downside risks: rebound in the oil price, lower ridership, reduction in fares, taxi competition and disease outbreak.

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