Excerpts from analysts' reports

♦ Credit Suisse: Target price $1.90

Credit Suisse analysts: Louis Chua, CFA & Christopher Siow 

400mrt● While headline FY16 PATMI was above expectations, this was largely a result of a net property tax refund of $19 mn relating to prior years' over-assessment, without which FY16 PATMI of $90.3 mn would have represented only 87% of our estimates. 

Given higher opex pressures, we expect train margins to deteriorate to -1.5% in FY17-18E, with near-term profitability potentially further impacted by fines meted out by the authorities.

“We believe real progress has been made on the transition to a new rail financing framework (NRFF), which would see SMRT become asset light and relieved of hefty capex obligations.”

-- Credit Suisse

● Following the FY16 results briefing, we believe real progress has been made on the transition to a new rail financing framework (NRFF), which would see SMRT become asset light and relieved of hefty capex obligations. Arguably, the continued deterioration of operating conditions could drive greater urgency to seek a more sustainable industry structure for the rail industry.

● We lower our FY17-19E EPS by 2-5% and DCF-based TP to $1.90 on lower rail profitability. We maintain our OUTPERFORM rating on SMRT, as we believe the transition to the NRFF would be an eventuality; SMRT would thus be a key beneficiary.


♦ Maybank Kim Eng: Target price $1.40
Maybank Kim Eng analyst: Derrrick Heng, CFA

Below; maintain HOLD on lack of transition details
Core 4Q16 was below, with FY16 EPS at 77% of our FY16F. As the market awaits details of an impending bus and rail transition, we expect the stock to stay range-bound. Maintain HOLD and SGD1.40 TP, at 20x FY3/17 EPS, +1SD above long-term average. Stock yields 2.7%.

“We believe it will continue to burn cash on rail upgrades for at least another 2-3 years without a rail transition.”

-- Maybank Kim Eng
Elevated capex in absence of transition
Management guides for non-rail CAPEX of SGD250m in FY17E. SMRT continues to engage the regulator on the industry’s transition to a sustainable operating model, without furnishing further details. We believe it will continue to burn cash on rail upgrades for at least another 2-3 years without a rail transition.

Responding to evolving taxi market
Not much impact has been felt from new taxi entrants. SMRT still had a healthy taxi hire-out rate of 96.5% in FY16. But in anticipation of competition, it recently rolled out Stride, a private-hire car business to provide alternatives to commuters and drivers.

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