Simons Trading Research
SBS Transit 3Q20 Update - Wheels in Motion
- SBS Transit reported 3Q20 net profit of S$19.4m (-3.5% y-o-y), above our expectation due to better-than-expected cost control.
- As social distancing measures ease further, we expect continued recovery of public transport ridership to underpin SBS Transit’s earnings recovery in 4Q20F.
- Reiterate ADD with a higher target price. SBS Transit remains our preferred pick in the Singapore land transport sector.
SBS Transit's 3Q20 Results Above Expectations
- SBS Transit (SGX:S61) reported 3Q20 net profit of S$19.4m (-3.5% y-o-y), above our expectations, with 9M20 net profit forming 94.0% of our previous full-year forecast. The key surprise was better-than-expected cost control.
- SBS Transit's 3Q20 revenue saw sequential recovery to S$302m (+14.3% q-o-q, -17% y-o-y), helped by the recovery in public transport ridership as Singapore eased its social distancing measures post circuit breaker.
- Meanwhile, operating costs (excluding government reliefs) stayed rather constant q-o-q, allowing SBS Transit to achieve EBITDA margin expansion of 1.1% pts to 15.3% during the quarter.
Ridership Set to Recover With Further Easing Measures
- We expect rail ridership to recover to 75% of pre-Covid levels by end-2020F, helped by further easing of social distancing measures in Singapore, including
- relaxation of work from home arrangements (announced end-Sep), and
- potential transition to phase 3 of its economy reopening.
- Rail ridership has seen steady recovery since the lifting of circuit breaker measures in Jun, and according to Google Mobility data, more people are gradually returning to work. According to SBS Transit, rail ridership for Downtown Line and North East Line were at 53% and 60% of pre-COVID-19 levels respectively as of end-Sep.
- We expect a stronger 4Q20F underpinned by further public transport ridership recovery, and forecast SBS Transit to record a net profit of S$23.1m (+19.4% q-o-q, +40.5% y-o-y) for the quarter.
We continue to prefer SBS Transit over ComfortDelgro
- Singapore government’s more prudent approach to tackling COVID-19 also makes us more confident that a major resurgence in new cases would not happen in Singapore vs. other geographies that SBS Transit also operates in.
- With strong FCF generation post the implementation of Singapore’s Bus Contracting Model (BCM) in 2016, we also expect SBS Transit to turn into a net cash position by end-FY20F.
- We see upside to SBS Transit's dividend payout ratio (FY19: 50%) post earnings normalisation, as its parent company ComfortDelGro had a dividend payout ratio of 80% in FY19.
Reiterate ADD With a Higher Target Price
- We raise our SBS Transit's FY20F-FY22F EPS forecasts by 2.5%-35.7% on the back of lower operating cost assumptions. Reiterate ADD with a higher Target Price pegged to 14.2x CY21F P/E (its 5-year historical average).
- Re-rating catalysts include potential rail financing framework reforms.
- Downside risks include slower-than-expected rail ridership recovery.
- See also report: ComfortDelGro 3Q20 Update - CGS-CIMB Research 2020-11-12: Bumpy Recovery
Source: CGS-CIMB Research - 12 Nov 2020
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