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SMRT full year down on rising fuel cost, pays smaller dividend

Here are some SMRT segmental information from the latest full year results. Particularly of concern is the latest 4th quarter performance.

  • Train Operations:Revenue=149m (13% rise), Profit=19m (21% fall)
  • LRT Operations:Revenue=2.6m(11% rise), Profit=0.068m (217% rise)
  • Bus Operations:Revenue=55m(5.3% rise), Profit= -3.7m (110% fall)
  • Taxi Operations:Revenue=29m(23% rise), Profit=1.2m (131% rise)
  • Rental:Revenue=21m(14% rise), Profit=16m (14% rise)
  • Advertising:Revenue=8.2m(37% rise), Profit=5m (25% rise)
  • Engineering:Revenue=8m(1% fall), Profit=1.5m (77% fall)

Of real consequence have been that of train, rental, advertising and engineering. Train and engineering have fallen badly while rental and advertising have sustain it.

The main attributable cause was energy and depreciation cost. With the bad press SMRT have been getting, couple with the announced 900m capital injection to improve on operations, this will further increase their depreciation expense.

I do see much benefit from their previous CEO’s drive for Rental and advertising. That have been substantial to cushion part of the costs going forward. Had she not put effort into it, SMRT’s result would have been much worse.

Net Cash Position

Although we see deterioration in earnings, balance sheet wise, SMRT is in a good position. Although they went from net cash of 125 mil to 44 mil.

Free Cash Flow Dwindling to pay Sustain Dividends

Free cash flow, which is a pretty good measure of how much cash a company has to pay out dividend from operations is worsening.

In FY 2011, free cash flow was 179 mil. In FY 2012, it became, 48 mil. Operating cash flow was the same, just that there were more capital expenditure spending.

To pay out the $0.085 dividend, SMRT requires 129 mil. If capex for the next few years is going to increase, then I am afraid dividends will be hard to pay off.

Assuming that out of the 900 mil, SMRT will assume 75% of it, this comes up to, 675 mil. Spread over 5 years, an annual increase in capex will be roughly 135 mil.

Just base on this alone, the free cash flow comes up to 150 mil, meaning to say to pay that 129 mil, SMRT may have to tap perpetual shares or preference shares, so that they can still have adequate cash flow to pay a smaller dividends and fund this capex


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Tuesday 1st of May 2012

well we don't really see the sell off. at least not in the extend of SIA. perhaps lets see if it will sink in first.


Tuesday 1st of May 2012

Singtel was privatised and is doing well.

SMRT will be the same too.

Unless the Gov comes up with some creative ideas about how to pacify the discontent, I doubt SMRT's being will change and therefore its business too.

There is a captive market for rail travel here in small singapore and the other competitor is SBS and the bus services. Private car ownership will be so prohibitive that its just not worth it.

Despite all the hoo-ha on its operational deficiencies, its business will continue. The important area is growth. That could come only from rentals, advertisements. I dont think they can offer consultancy work overseas.

So,I would buy SMRT and keep it for the long term.. subject to changes in business or shareholder focus.

All this, along with the analysis from Drizzt! Thanks!


Tuesday 1st of May 2012

I wonder if retailers will sell off SMRT given the bad press and the dividend cut. They will probably think the dividend cut will last for quite a while given their high capex. I still recall the time when it was >$2. Will it be a good time to buy in at a lower price?

Will the govt's $1b funding offset majority of SMRT's capex for the upgrading?


Tuesday 1st of May 2012

hi MW, its a blast back to infant stage where they need capital rather than able to dish it out.

I see it this way, get past this stage and it will still generate a good cash flow


Tuesday 1st of May 2012

A dividend is never a given, and usually is a function of how well the business does, the amount of FCF generated and required capex for future years. There is no obligation to pay a dividend which is similar to last year's or even to maintain a payout ratio, even if the Company had specifically stated this.

Things change and the business world moves along, so companies must react and adjust accordingly.

If SMRT really has to borrow or issue perps/preference to pay dividends, then I'd get really worried for their shareholders. I somehow feel it's wrong to borrow to pay dividends - they should rely on excess FCF over and above what is required for capex, R&M and opex; and use that to pay dividends. If dividend needs to be cut, so be it.

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