From the day last week when SMRT annced its eight-year $900m programme to upgrade many infrastructural and systems components on the North-South and East-West lines would exceed what it had spent on repairs and maintenance in the past 10 years, and
– no details on how the cost will be co-shared with the Land Transport Authority (to be negotiated); and
– no details on many parts of the upgrading programme,
till Monday, its share price fell 7.2% from 1.81 to 1.68. It then annced its results (not gd as expected) and today closed at 1.66 down another 1.2%. It went as low as 1.63. All this despite paying a dividend of 5.7cents a share or 3.4% of Monday’s close. (Mkt was closed on 1 May.)
Starting to look interesting as a dividend stock with recovery prospects. Time to analyse results in detail.
Mean of me, but I can’t resist reposting OCBC’s note dated 9 April when stock was at 1.74 and OCBC reiterated its “buy” call.
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.