SMRT recently reported FY07 net profit of S$135.4m was up 30.9%, this was primarily driven by non-operating items such as tax write-back from a reduction in deferred tax liabilities (arising from the reduction in Singapore corporate tax rate) and the FY06 losses incurred by an associate (which was divested as at Mar 2006). Core earnings, better represented by operating profit, was up a mere 4.7%.
But future cash flows set to improve when the Integrated Resorts start operating.
The Singapore Tourism Board expects an additional 2m to 3m visitors in 2010, when the two integrated resorts are opened. This represents a 25% rise from the 11m projected for 2009.
SMRT’s current high taxi idle rate of 21% (though lower than Dec 06’s 24%) could plunge by then, on the back of more demand for taxi services by visitor arrivals. In addition, rail services will also benefit from improved ridership when the integrated resorts contribute to overall economic growth. Also the potential for SMRT to operate more rail lines eg. the recently-approved Downtown Lines.
Target price for SMRT is S$2.10. This comprises the following:
a) S$1.55 for existing operations (which has factored in cannibalisation from the 2010 commencement of Circle Line operation),
b) S$0.17 for the Circle Line
c) S$0.38 value enhancement assuming the land transport review will lead to one operator running all rail and bus operations in Singapore.
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