DBS Equity Research: Wired Daily 9 July 2015

kiasutrader

Publish date: Fri, 10 Jul 2015, 09:30 AM

SMRT - Latest train disruption lowers earnings visibility and raises risk premium. Downgrade to HOLD with lower TP of S$1.59

We expect the occurrence of the latest train disruption, which appears to be the most major one since Dec 2011, to pose downside risks to our cost assumptions for SMRT. This undermines our earlier thesis of a strong earnings recovery on the back of stable cost structure, fare increases and longer-term potential of rail reforms. This event also lowers the earnings visibility and raises the risk premium for the counter. Following the Dec 2011 incidences, repair and maintenance (R&M) costs were hiked to an average of 11.6% (of train, bus, taxi revenue) for FY13 to FY15, up from 9.2% (for FY07 to FY12). We raised our FY16F/17F R&M cost assumptions by 0.6ppt to 12.1%/11.9% (as % of revenue) from 11.5%/11.3% previously. We have trimmed our FY16F/17F forecasts by 6%/ 9% and our TP is lowered to S$1.59 (Prev S$1.88). We therefore downgrade our recommendation to HOLD.

M1 announced an agreement to enable Liberty Wireless to deliver voice, messaging and data access to its customers using M1's mobile network as a mobile virtual network operator (MVNO). Liberty Wireless is a Singapore-based mobile telecommunications company whose operating brand is Circles Asia. Under the agreement with M1, Circles Asia will tap the telco's mobile network to offer voice, messaging and data services to postpaid customers in Singapore. MVNOs are mobile operators which, instead of setting up their own networks, buy bandwidth at a wholesale rate from existing mobile operators and use it to offer telecom services to its customers. Circles Asia will become the first MVNO operating in Singapore which provides a full-service mobile network experience. In addition to Liberty Wireless, M1 also hosts two MVNOs which offer prepaid mobile services to consumers.

Centurion Corp issued S$65m three-year bonds priced at 5.25%, lower than the initial 5.50% guidance. The company initially wanted to issue S$50m but due to demand upsized it to S$65m. This is Centurion Corp's second bond sale, its first was a S$100m issue in 2013.

European markets rallied yesterday after Greece submitted a formal request for temporary funding from the 500 bn euros (S$755 bn) European Stability Mechanism (ESM). Despite the request from the eurozone bailout fund, however, Germany and other eurozone finance ministers have demanded a detailed proposal for budget and economic reforms by Thursday night. European leaders will vote on them at an emergency meeting on Sunday. In US, Dow eased 1.47% as Federal Reserve officials tempered economy optimism with concern on Greece.

Source: DBS

Centurion (OU8)

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