• Singapore’s reversion to Phase 2 (Heightened Alert) since May 21 hurt SBS Transit’s 2Q21 results. Government grants kept SBS Transit in the black.
• Supported by a high vaccination rate, Singapore is reopening its economy, which could aid SBS Transit’s ridership recovery.
• Reiterate ADD on SBS Transit with an unchanged target price of S$3.50.

2Q21: Government Grants Remain a Big Help to SBS Transit

• SBS Transit (SGX:S61) reported a 2Q21 net profit of S$13.2m (-43.5% q-o-q, -38.6% y-o-y). 1H net profit of S$36.5m (+11.9% y-o-y) was below expectations, at 48% of our FY21F forecast. The weaker y-o-y profitability in 2Q21 was mainly attributable to significantly lower government grants vs 2Q20. Excluding government grants, operating loss narrowed y-o-y to S$2.8m in 2Q21 (2Q20: S$42.7m operating loss).
• SBS Transit resumed its interim dividend payout with a dividend of S$0.0575 per share, implying a ~50% payout ratio.

Rail Ridership to Recover With Easing Restrictions

• With a high vaccination rate in Singapore, we expect government grants, we forecast SBS Transit to achieve an operating profit of S$14.4m in 2H21F (2H20: S$0.4m operating loss).

DTL Financing Framework Reform Remains a Potential Catalyst

• The Downtown Line (DTL) financing framework review remains a key potential catalyst for SBS Transit this year, in our view. We see 27%-30% upside to SBS Transit’s FY22-23F net sustaining continuous losses.

Reiterate ADD on SBS Transit

• We lower our FY21F earnings per share forecast for SBS Transit by 22.7% to factor in the 2-week extension of Phase 2 (Heightened Alert) in Jul, which hurt ridership. Nevertheless, we reiterate ADD on SBS Transit and target price of S$3.50, still pegged to 13.2x CY21F P/E (5-year historical average).

• We expect continued core slower-than-expected rail ridership recovery.

Source: CGS-CIMB Research - 12 Aug 2021