Back in the black: Lower bus operation losses drove SMRT's 1Q profits

But fare-based business still in the red.

After registering ugly set of results in the previous quarters, SMRT's bus business is back in the black with a sharp reduction in operating loss.

SMRT reported net profit of SGD16.9m for 4QFY3/14 which mainly came from its bus operations' sharp reduction in operating loss to SGD4.4m (4QFY3/13: SGD11.9m). Despite this, the fare-based business remained in the red for the quarter, chalking up operating loss of SGD3.7m.

Here's more from Maybank Kim Eng:

Following the fare hike last month, we expect SMRT’s fare-based business to continue to improve in the coming quarters.

However, as highlighted in our earlier report (note), the estimated annual net benefit of SGD13.2m is insufficient to fully compensate for losses at its fare-based business (FY3/14: SGD25.0m). Therefore, a transition to a sustainable model is still badly needed.

We have not factored this into our forecasts. The sharp decline in FY3/17E EPS reflects our expectations for traffic cannibalisation when Stage 2 of the Downtown Line (DTL) opens in 2016. Management will host an analyst briefing today and we expect the discussion to centre on the transition of its fare-based businesses.

We raise our FY3/15E/16E/17E earnings forecasts by 28%/17%/29%, albeit off a low base, to reflect lower cost estimates. We reiterate our SELL call but raise our TP to SGD0.65 (from SGD0.60),based on 14x FY3/15E-17E P/E. In our view, it is speculative to conclude that the transition terms for the business model will be favourable.

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