Brings diversification from tepid transpo sector.
SMRT Corp posted another weak quarter, with 3QFY14 PATAMI falling 44.1% yoy to S$14.2m on the back of spiraling higher staff costs.
But the expected commencement of operations of the Singapore Sports Hub in the next few months "will be a bright spot" for the company, according to OSK-DMG, "as it will reduce the group's reliance on the lackluster transportation business in Singapore."
Here's more from OSK-DMG:
Still seeing falling profits amid rising revenue. SMRT Corp (MRT)’s turnover continued to go up, as growing ridership boosted revenue 4.1% y-o-y higher to SGD293.3m in 3QFY14. Its average daily rail ridership rose 2.2% y-o-y to 1.94m/day, while that for its bus service unit increased 5.1% to 942k/day. However, PATAMI plunged 44.1% to SGD14.2m, as EBIT margins dipped 4.5 ppts y-o-y to 6.9%.
Spiraling staff costs continue to drag down profits. Staff costs continue to weigh on the company, as we expected in our previous update. In 3QFY14, staff costs jumped 21.4% y-o-y to SGD119.6m, resulting in fare losses amounting to SGD9m. For 4Q, we do not expect the percentage increase in staff costs to change. We see staff costs escalating to the detriment of the group’s margins.
Sportshub the first step towards diversifying. The Singapore Sports Hub is expected to commence operation in the next few months. We believe that the 41,000 sq m operation, jointly run by MRT and National Trades Union Congress (NTUC) Fairprice, will be a bright spot for MRT, as it will reduce the group’s reliance on the lackluster land transportation business in Singapore.
Maintain SELL; fare hike priced in. While the impact of rising costs is being mitigated by fare increases, the actual net positive impact on MRT’s bottomline is limited. We do not foresee this trend changing in the near future. As the stock is still trading at an unattractive 26.9x FY15 (FYE March) P/E, we prefer ComfortDelGro (CD SP, BUY, TP: SGD2.25). We recommend that investors switch to CD for the latter’s better yields and stronger growth potential.
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