SMRT In Focus

 

ALP STOCK INVESTMENT CLUB (19 December 2015)
SMRT Corporation Ltd
(15 December 2015) close: S$1.44
Target price: S$1.45
 
1) Sector: Transportation
 
2) Core business structure:The group operates its business through eight segments: rail operations(MRT&LRT), bus operations, taxi operations, rental, advertising, engineering services, other services, and investment holding and support services.
SMRT’s rail operations segment is engaged in the provision of mass rapid transit system (MRT system) and light rapid transit system (LRT system) services.
The group’s bus operations segment is engaged in the provision of public bus services. The taxi operations segment provides rental of taxis, provision of taxi services and sale of diesel to taxi hirers.
SMRT Corporation (SMRT), a subsidiary of Temasek Holdings (Private) Limited, is a multi-modal transport service provider with interests in operations and maintenance services, engineering consultancy and project management services.
 
3) Segment that generates the highest revenue: Rail operations(MRT&LRT) are the main source of revenue for SMRT. Rail operations contributes 52.9% of the group total revenue.
 
4) Countries that the business operates: The group operates in Singapore, the UAE, Hong Kong and the UK. It is headquartered in Singapore City, Singapore and employs around 7,482 people.
 
5) Challenges:
– Centralized only in Singapore for revenues
– Lower train operating profit due to higher R & M costs and staff related expenses, partially offset by higher revenue.
There is limited land space for expansion with increasing travel demand.
Rise in number of vehicles
 
6) Strengths:
– High Product Diversity – Bus, Train and Taxi services
– High Product Quality
– Modular transportation growth approach to offer better connectivity for future
– Safe and secure. Least number of fatalities over the 10 year moving average.
– Over 7000 people are employed with the organization.
– Increased Ridership trend
– Expansion of RTS Network
– Growth in industry due to tourism boom
– The company can tie-up with international players for global exposure.
 
7) Significant events:
 – Train breakdown: Rail operator SMRT Corp has been handed a $5.4 million fine for a massive breakdown that crippled both the North-South and East-West MRT lines during the evening peak period on July 7.
– Here is an interesting information(Fare Adjustment) extracted from SMRT’s Annual report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8) Table:
SMRT
9) Recommendation: HOLD. Operation activities are the main flow of cash. This suggested that the company is doing well. Debt to equity ration is low, which indicates that the company is using less leverage and has a stronger equity position. Outlook remains challenging due to the implementation of Government Contracting Model (GCM) which is intended to inject competition into the bus industry. However, some may argue that the impact to the group’s financial strength may be minimal as bus operations only contribute 19.3% of the group total revenue. The group’s main revenue driver in the future may lie in its rail operations.
 
COMPILED BY: Mao Qingrong
 
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

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