SMRT Corporation Ltd: No surprises

- 3Q11 net profit of S$43m (+10% yoy; -6% qoq) within expectations

- Circle Line ridership at c.163k/day, still below 200k/day for breakeven

- Expect 4Q11F net profit to slide q-o-q on higher staff and maintenance costs

- Maintain Hold and S$2.15 TP

Comment on Results
3Q11 within expectations. 3Q11 net profit rose 9.6% yoy to
S$43m, largely due to the absence of S$6.6m goodwill impairment
in 3Q10. Excluding the goodwill charge in 3Q10, EBIT would have
been down 6.7% to S$52.1m due to higher energy, maintenance
and staff costs. Revenue rose by 8.5% to S$243.9m on higher rail
ridership revenue (+9%), advertising revenue (+14%), and rental
income (+12%).

Circle Line still dragging rail performance, but this is not a surprise. SMRT will soon start recruiting for Circle Line Stages 4 & 5 in preparation for its opening by 4Q2011. Daily ridership for CCL is at c.163k, still below the 200k originally expected. With CCL Stages 4 & 5 due to open by 4Q2011, this should be positive for total ridership and SMRT over the longer term.

Recommendation
Weak FY11F priced in; Maintain Hold and S$2.15 TP. We expect 4Q's net profit to decline q-o-q largely on higher staff and maintenance costs. On a y-o-y basis, we could see an improvement due to a low base in 4Q10. In our view, the operating losses from Circle Line have been factored into the share price. As stated in our last report, SMRT will benefit given the positive industry developments slated for the latter part of 2011 onwards, such as the completion Jurong East Modification Project and CCL4&5 opening. We maintain our Hold recommendation and TP of S$2.15 based on PE/DCF.

Source