SMRT Shares Down To Five-Month Low After Downgrades

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Rail operator SMRT Corporation saw its shares remain on a downward trend as selling pressures mounted after analysts pared their target prices for the stock. The shares shed $0.005, though recovering somewhat from its intra-day low of $1.62, to end today’s trading session at $1.63. This was in addition to yesterday’s decrease of $0.04, its biggest blow since July 2012, as the shares plummeted to a five-month low of $1.635.

This came on the back of a dismay third quarter performance as SMRT’s earnings report card released on 29 January, fell way short of expectations. Hit hard by higher staff costs as well as increased repair and maintenance costs, earnings tumbled 31.2 percent to $25.5 million for the quarter ended 31 December 2012.

What caught many brokers by surprise was the extent of the increases in such costs. The negative surprise, in turn, had them share the company’s cautious outlook. SMRT has warned that “the profitability for the group, in 4Q13 and the next 12 months will deteriorate due to higher operating costs”. This was due to the company’s intent to intensify its efforts to improve train service, reliability and operational performance.

With its escalating operating costs showing no signs of abating, CIMB, DBS Vickers, Maybank Kim Eng, OSK-DMG all lowered their price projections. Further compression on margins is expected as the company adds more headcounts in 4Q13 and repairs and maintenance costs continue to grow.

Source: Various Research Reports

Phillip Securities was the exception as it raised SMRT’s target price by $0.06 to $1.41. The research house expects lower-than-forecasted capital expenditure for the upgrading of its rail assets, after SMRT revealed that the Land Transport Authority will foot the bulk of the $900 million bill. Phillip Capital kept its Sell rating for SMRT.

In addition to the target price cuts, there are expectations of a lower dividend payout this year. DBS projects a FY13 dividend per share of $0.055, from $0.0745 in FY12, while CIMB sees a reduction of dividends to 60 percent this fiscal year, from 94 percent in the previous year.

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