25 September 2015
SMRT (HOLD) : A Record Fine
SMRT [MRT SP] HOLD
Price/Tgt: S$1.295 / S$1.25 Mkt Cap: S$1.97b 52-wk avg daily value: S$2.85m 1-Yr Hi/Lo: S$1.815/S$1.12
A Record S$5.4m fine
Analysts: Andrew Chow Tel: (65) 6590 6633
What's New?
The LTA has fined SMRT Corp S$5.4m – the largest penalty so far – for the massive breakdown of its North-South and East-West lines on 7 July.
Our View
This would lower FY16F net profit forecast by 5.6% but could have been worse in our view. More than 250,000 commuters were affected by the North-South and East West Line breakdown and under the new regulations that were approved by Parliament in February 2014, SMRT could have been hit by a maximum fine of up to 10% of its annual fare revenue (from a previous maximum fine of S$1.0m). The key catalyst for this stock is the potential special dividend from the rail financing framework, which we believe could result in a special dividend of 18.2-23.2 cents/share for SMRT shareholders. assuming: a) the government buys back train assets from SMRT at 0.9-1.0x P/B, b) SMRT pays down 50% of its outstanding debt, and c) the remaining net cash gets fully paid out as a special dividend. In our view, should a special dividend be paid, the theoretical price range for SMRT is S$1.43-1.48.
Meanwhile, we maintain our HOLD rating, with a DCF-based target price of S$1.25. Entry price is S$1.14.
Andrew Chow, CFA
UOB Kay Hian Research
DID: +65-6590 6633
Email: andrewchow@uobkayhian.com
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