— a foreign wire, AFP, reporting, “Services were disrupted along a new multi-billion-dollar Singapore metro line on Wednesday, the third straight day of rush-hour delays for the city-state’s gleaming train system”; and
—— pointing out, “No fewer than five disruptions took place within a week since last Friday, with all of them affecting rush-hour commuters”; and
—— “Statistically, this frequency far exceed the average one-per-week disruption that lasted more than 10 minutes between April 2010 and March last year, and the 0.6-per-week average recorded between 2007 to mid-2009”,
I couldn’t help but wonder if OCBC would change its mind on SMRT because on 9 April, OCBC issued a BUY call on SMRT which was then trading at 1.74. BTW it closed at 1.81 today, so the recent problems have not affected the share price, another laugh there
OCBC report on SMRT dated 9 April 2012
Strong selling pressure as anticipated by more than half of the street failed to materialise with the counter trading tightly range-bound for slightly more than two months.
During this period, SMRT has also kept to a lower profile with the announcement of work completion from its Internal Investigation Team as the only major development.
Ahead of the upcoming earnings release at the end of the month, we continue to stress that SMRT is likely to see an upswing in fuel costs, following the run-up in prices as well as the additional train runs commissioned in the face of higher ridership and public pressure.
Coupled with higher staff costs related to seasonal merit increments and additional headcount to meet service requirements, we are likely to see the weakest quarterly performance for FY2012.
In terms of fallout from the December 2011 service disruptions, we do not expect any incremental costs at this juncture as the more important inquiry by the Committee of Inquiry (COI) has yet to be completed.
While SMRT’s FY2012 results are likely to stay uninspiring, the counter’s attractiveness as a dividend play remains its key selling point. SMRT’s management has maintained and reiterated its commitment to maintain its dividend payout policy.
Although its prospects going forward will be challenging – COI findings, no fare increments – SMRT’s ‘customer’ base is still growing.
Ridership levels continue to grow especially with support from the current trend in COE prices, while rental and advertising yields are naturally competitive given the high foot traffic locations of their stations.
With this backdrop and earnings support and stabilisation in SMRT’s price, we continue to call for an attractive entry point for SMRT.
Maintain ‘buy’ at an unchanged fair value estimate of $2.04.