SMRT shares jump when trading reopens; OCBC, RHB Sec recommend investors accept Temasek's buyout offer

An SMRT train at the Jurong East interchange on July 18, 2016.
An SMRT train at the Jurong East interchange on July 18, 2016.PHOTO: AFP

SINGAPORE - Shares of SMRT Corp jumped on Thursday morning (July 21) when trading in the counter resumed after the announcement of Temasek Holding's buyout offer for the rail operator at S$1.68 per share.

At about 9.15am, SMRT shares were trading at S$1.655, up 11 cents or 7.12 per cent from its close on Friday of S$1.545. Volume was heavy with some 4.57 million shares traded, making SMRT among the most active counters.

Temasek's offer of S$1.68 per share is at an 8.7 per cent premium over SMRT's last traded price on Friday when a trading halt was called.

Temasek has said it will not be raising its offer price which it descibed as fair and final.

For Temasek's buyout bid to succeed, a majority of SMRT shareholders present at a meeting have to vote for it. These shareholders will have to hold at least 75 per cent of the value of SMRT shares held by all shareholders present at the meeting. Temasek will abstain from the vote.

Its offer comes after the government announced last week that it will take over all the operating assets of SMRT's North-South, East-West and Circle rail lines, as well as the Bukit Panjang LRT Line, for S$1.06 billion in the so-called New Rail Financing Framework (NRFF).

 

OCBC on Thursday recommended SMRT investors accept Temasek's offer because of "the unexciting outlook and capped earnings upside of SMRT post-NRFF".

It said the offer price of S$1.68 represents a 15.9 per cent and 19.1 per cent premium over its 12-month fair value estimate of S$1.45 and consensus target price of S$1.41.

RHB Securities also recommended that its clients accept the offer. It said that given near-term cost headwinds and uncertainty on rail fares and ridership, it is likely that SMRT may earn Ebit (earning before interest and tax) margins lower than 5 per cent under the NRFF.