Bad Days are Over for SMRT?

smrt-logo

The share price for SMRT increase by a whopping ~20% last Thursday from $1.025 to $1.20. Although it is still far away from its ~$1.70 in end 2012, many fellow investors are asking if this could signify a turning point for this counter.

Analysts from various stock broker firms were quick to generate a report to give their commentary regarding this sudden price hike. The reasoning were as follows:

1. Speculation that SMRT will be privatised/ nationalised and therefore, be delisted from SGX.

2. SMRT submitted their interest to adopt the new financing framework that was introduced by the government in 2010. Under this framework, Singapore government would own the assets of SMRT (Railway tracks etc.), and be responsible for maintaining them. This proposal if successfully go through would free SMRT from having to sustain huge capital expenditures on asset replacement, which has been eating their top line and drastically affecting their bottom line of its Profit and Loss statement. 

The verdict was that the first possibility is unlikely to happen, whereas the second possibility is the one that investors should be betting on.

SMRT (S53) - A sharp increase in price

SMRT (S53) – A sharp increase in price

What’s Next? The Bear Argument

In the most recent announcement for the third quarter, SMRT fare related profit was reported to be at a loss of $9 million, while non-fare related profit reported to be at a profit of $27 million. As a result, the company’s net profit dropped to S$14 million.

The loss for the fare segment was mainly due to a rise in operating expenses, which went up 10.6% to $284 million on the back of higher staff costs and depreciation expenses.

In my opinion, even if the submission is to get approved, it will still require a few years for this stock to shine or in investor’s jargon to be a multi bagger. There are still several challenges that SMRT has to grapple with such as increasing manpower expenses which went up 10.6% to $284 million. SMRT also has to get their tainted reputation back on track with the disappointment events that had happened.

What’s Next ? The Bull Argument

On the other hand, it is indeed a stock worth to look at after several good news released recently (from 6 Apr fare hike and this new financing framework).  Furthermore, SMRT does has a huge pie in the public transport sector in Singapore. Using porter five forces analysis, you would realise that there is no doubt on why SMRT can be a good bet in the long run.

Porters_five_forces

 

The transport sector, especially the railway train service, is highly regulated by the government. This limit the number of players in the market (currently the only competitor is SBSTransit, even though so, they are serving different routes). With the COE at ridiculously high price, people are forced to sell their private car and take the trains instead. We as customer/commuters although can sound out our displeasure on squeezy and stuffy trains, at the end of the day, we still need to take the train to work or school. The best point is that even though the train is still breaking down now and then with the track is still as faulty, we cannot stop the fare from rising.

Conclusion

The question on whether to buy or to sell largely depend on your investment horizon and risk appetite. In short-term wise, the price has run up quite much, so if you are holding you might consider to sell to pocket in some profits. In long term perspective, there is still room for upside. As long as there is no teleport machine being invented, majority of us, the working class will still have to take trains to work. That will means endless business for SMRT.

Cheers~

One thought on “Bad Days are Over for SMRT?

  1. An update:
    1) For the full financial year 2013, SMRT net profit fell 25.7% to $16.9m despite a 4% increase in revenue to $1.16m.
    2) The star performers are the non-fare business which consist of Taxi, Advertising and Rental.
    3) Taxi operating profit rose 49.7% to $9.6m due to higher rental contribution from a newer fleet and lower diesel tax.
    4) Advertising profits rose 13.4% to $20.8m due to increased advertising on trains, buses and in the network.
    5) Rental profit rose 9.6% at $73.4m due to more lettable space after the redevelopment of Woodlands Xchange and higher rental renewal rates.
    6) Full year EPS came to 4.1 cents down 25.8% from 5.5 cents the previous year.
    7) A final dividend of 1.2 cents per ordinary share + 1 cent of interim dividend = 2.2 cents worth of total dividend per share. Down from the previous year’s of 2.5 cents.
    8) Calculated dividend yield is 1.8%, based on price of $1.22.

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