SMRT's operating costs to outstrip ridership growth

Plus higher staff costs, repair and maintenance.

According to DBS, 2Q13 within expectations. 2Q net profit dipped 2% y-o-y to S$33.3m despite an 8% increase in revenue to S$281.2m. 1H13 accounts for 50% of our FY13F forecasts.

Here's more from DBS:

All business segments registered revenue growth, except Engineering due to lower consultancy revenue. Rail continued to be the main revenue driver with average daily ridership up by 7.3% to 1.9m.

This was helped by Circle MRT Line (CCL) average ridership of 350k/day.

Margins under pressure from higher costs. EBIT margins dipped by 1.7ppts to 14.4% as a result of higher staff costs (+10% y-o-y), depreciation (+20%), repairs and maintenance (+28%) and other operating expenses (+10%).

This was partially mitigated by lower electricity and diesel costs (-6%) due to lower tariffs and diesel price.

Lower interim DPS of 1.5 Scts not a surprise. The Board declared a lower interim DPS of 1.5 Scts (1H12: 1.75 Scts), which was not a surprise to us given the higher capex needs and operating expenses.

Management had guided for capex of S$500m in FY13F, and S$118.5m has been incurred as of 1H. As such, we should see a significant ramp up in capex in 2H.

While ridership is expected to grow, operating costs is projected to increase at a faster pace due to higher staff costs, repair & maintenance and depreciation. Thus, bottomline growth is expected to remain unexciting.

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