SMRT


There is one counter that caught my eye this month, and it is SMRT. This is something you would want to invest in rather than trade. I see a lot of potential in this. SMRT broke out of the 1.96 resistance and has never looked back since. It last traded at 2.28. Of course, seek to accumulate on a pull back, but these are the reasons why SMRT is an attractive prospect:





Financials
(S$million)
FY2009
FY2008
FY2007
FY2006
FY2005
FY2004
FY2003
FY20021
Revenue
879.0
802.1
743.1
711.7
673.5
667.3
685.6
496.8
Total operating expenses
716.9
645.0
625.6
597.7
607.1
596.8
609.5
418.5
Profits
EBITDA2
299.0
284.1
255.0
247.2
230.0
225.5
243.7
196.6
Operating Profit
188.7
178.0
145.3
138.8
92.8
99.3
96.0
92.3
Before Tax
185.8
176.2
142.3
124.1
83.9
86.2
72.7
82.3
After Tax
162.7
149.9
135.8
103.6
126.6
90.2
72.2
56.8
PATMI3
162.7
149.9
135.4
103.4
126.7
89.5
72.1
56.8


The SMRT profit after tax and the cash raised from operations are consistently rising for the last 7 years. The net dividends has risen from 2.2 c/share to 7.8c/share over the 7 years. As of 2009, the dividend yield stands at 3.7%.

Purely as a dividend play, i would say that the yield is not high compared to reits like Suntec and Cambridge. However, the gearing is very low. As of 2010, SMRT has maintained a net cash position. What does this mean? The risk of a default or financing issue is low, and looking purely at just 3.7% dividend yield, it is good value. In terms of looking at a sustainable and well managed business, i believe there is ample recognition for SMRT.

Market position

SMRT derives its revenue from the fleet of SMRT buses, taxis, advertising, and increasingly from its property rental. Rental income has increased from $19.7 million in 2005 to $42 million in 2008, and is set to increase further once the Retail hubs are fully completed, and the Circle line is completed. Comfort Delgro is the only other company operating the NEL line. With a near monopoly on rail operations, a duopoly in bus operations and increasing rental space, the market dominance is uncontested.

Government policies

There are more than 60 ERP gantries scattered across the island aimed at controlling the congestion problem in the major roads leading to the CBD area. Combined with the high cost of parking in the CBD, the government is pointing human traffic towards public transport rather than private transport. The recently imposed COE quota system has caused an uproar, with COE prices reaching $30000 for cars below 1600cc. Car prices are likely to remain high with the supply of COE being tightly regulated. While car ownership is more than ever attractive to Singaporeans in this piece of congested land, it is increasingly becoming out of reach for many.
The combined effect point towards the encouragement of public transport over private transport. Not only is car ownership increasingly expensive, but car usage too. Coupled with the frequent jams during rush hour leading to fustrating waits, the tradeoff is increasing, especially for the middle income earners.

Next, ridership grew by another 5% from mar09 to mar10. The population figures stand at 4.9m as of 2009, out of which 1.7m are PR and foreign talents. The liberal immigration policies are not going to hit the brakes anytime soon, so more people can be packed into the containers. This represents a continuing upward trend on ridership and therefore revenue from fares.

State ownership

Being a GLC, state ownership through 'private' entity Temasek Holdings stands at 54.37% in 2009. Judging from the continual profit over the last 7 years, tight regulation over the private transport market and the blatant increase in population, i infer that the state stands to gain from the strong financials of SMRT, and the various policies directed point strongly towards an upward movement in the stock over the long term.

Technical Analysis

The stock has reached an all time high of 2.32 on 30th of April, and has not seen any significant pullback since March. The oscilators have be trending strongly without any signs of divergence yet. The short term uptrend is still intact, but there is no harm waiting to collect on a pull back between 2.15-2.20.

Conclusion

These are some fair value estimates from various brokerages houses made in April 2010. CIMB-$2.41, Philip-$2.42, OCBC- $2.22, Amfraser- $2.19

I think any Singaporean who travels on the MRT frequently and especially during the rush hours will know how it feels like. Well, if the fares cannot be controlled and the squeeze unavoidable, the minimum is to invest in SMRT to ensure that you get your slice of the pie (although it might not be big) to negate some of the fustrations encountered in daily commute. Cheers.