Losses on the Circle Line were one of the drags on SMRT’s 1QFY11 performance. Operating profit from its MRT operation fell 24% y-o-y despite a 12% increase in revenue, as increased ridership was overwhelmed by higher operating expenses with the opening of more stations along the Circle Line and as average daily ridership of 145k was below expectations of 200k.
We cut our DCF-derived target price for SMRT to $1.95 (WACC: 8.4%, terminal growth 2%) from $2.31 after: (1) cutting our EPS estimates by 3-4% for FY2012-2013; (2) adjusting for higher capex assumptions; and (3) re-aligning discount rates with our house rates. We remain wary of losses on the Circle Line with the opening of more stations in 2011 and margin pressure from rising fuel and electricity costs. Valuations are also rich at 19x CY11 P/E.
Am waiting for it to fall under $2.00 before I do a buyback.
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Do provide your constructive comment. I appreciate that.