Come March 21, SMRT Corporation Limited will leave the 30-component stocks of Straits Times Index (STI). Global Logistic Properties (GLP) will take its place.
As at 31 March 2010 (FY2010), the closing price was $2.04 with a market capitalization of $3.1 billion. Since then, SMRT’s share price reached a 52-week high of $2.34 before turning downward to 52-week low of $1.90 today. This was an 18.8 per cent drop from its peak price.
For the first nine months of operation ended 31 December 2010, net profit after tax decreased 9.4 per cent to $127.0 million mainly due to lower operating profit. (Source: Media release from SMRT, 28 Jan 2011)
President & CEO of SMRT sounded a cautionary note in the same media release:
“…However, we remain cautious on the outlook as the profitability of the Group will continue to be impacted by continuing losses from Circle Line operations and volatility in energy prices. With the recruitment for the ramp-up of Circle Line Stages 4 and 5 commencing in 4Q FY11, staff and related costs are also expected to increase.”
It will take time for the Circle Line, which was expected to be fully operational from October this year, to reach the kind of profitability of the North-South Line and East-West Line.
As oil prices advanced as a result of Libya turmoil, SMRT’s bottom line will take further hit from higher energy prices for their rail and bus operations.
Revenue from rail and bus operations will not have the advantage of fare increases since the Public Transport Council had decided to defer this year’s fare review exercise to the fourth quarter of this year. If you look at airlines, they can increase fuel surcharges on air tickets to mitigate the impact of oil price increases.
In a joint statement of Land Transport Authority, SMRT and SBS Transit released on 8 March: “From the middle of this month, commuters can look forward to shorter waiting times for trains, as an additional 590 train trips per week will be added to the North- South-East-West Line (NSEWL) and North-East Line (NEL).” This will increase operational costs of SMRT further should there be no significant increase in ridership during the hours when the additional train trips are added. Looking at the angle of shareholders of SMRT, it does not made economic sense. However, from the perspective of commuters, they will have a more comfortable ride with shorter waiting time.
On a longer term basis, I believe that SMRT will do well when Circle Line is in full operation after a number of years and where cost effectiveness and efficiency have run in. I am also impressed with the fact that SMRT’s dividend policy is to increase dividend payout each year with target of minimum payout ratio of 60 per cent of Profit After Tax and Minority Interest (PATMI).
Copyright © 2011, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.
