$5.4m fine drags SMRT into the red

Transport operator SMRT Corp has already made provisions for its record $5.4 million fine in its latest financials, the company said at the post-results briefing yesterday.

If not for the fine, which was for an unprecedented breakdown affecting the North-South, East-West lines on July 7, the Temasek-owned company's core MRT operations would have been profitable.

As it turned out, SMRT incurred a $2.8 million loss on its MRT operations in the second quarter ended Sept 30 - down from a $7.6 million profit in the same period last year.

On the whole, SMRT posted a 1.9 per cent rise in net earnings to $25.7 million for the quarter, as revenue grew 4.7 per cent mainly on the back of non-fare operations to $328.8 million.

It has declared an interim dividend of 1.5 cents per share, unchanged from last year. Closing at $1.49 yesterday, its stock price has returned to almost where it was before the July incident sent it plummeting.

All things considered, research analyst Abhishek Nigam at stockbroking firm Nomura said "SMRT reported solid second-quarter results", which were helped by higher ridership in both the bus and train businesses, as well as a fare hike of 2.8 per cent that kicked in in April.

Mr Nigam expects the bus business to improve further when it transitions to the new contracting model, "likely in the second half of 2016".

"While earnings outlook for the rail business remains challenging, an announcement regarding transition to the new rail financing framework can be a key driver for the stock price," he added.

At yesterday's briefing, a panel chaired by chief executive Desmond Kuek would only say that SMRT was making progress in the rail discussions, and that it was in talks with the Government on migrating to the new bus model.

Both developments, when they take effect, are seen to be financially positive for SMRT. For one, its depreciation charges will shrink significantly. Depreciation is its largest cost item after manpower.

The company would also not have to incur huge capital expenditures on asset renewal.

Nomura estimates SMRT's stock price has an upside potential of as much as 37 per cent.

This article was first published on October 29, 2015.
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