SMRT shares rise but stay below offer price

SMRT shares jumped yesterday on the counter's first day of trading.
SMRT shares jumped yesterday on the counter's first day of trading.PHOTO: ST FILE

Analysts advising retail investors to accept Temasek's takeover offer of $1.68 per share

SMRT shares jumped yesterday on the counter's first day of trading after a halt since last Friday was lifted, but remained below Temasek Holdings' offer price of $1.68.

The stock opened at $1.66, up 7.44 per cent from its last trading price of $1.545, and closed at $1.64.

Temasek owns 54 per cent of SMRT and had announced buyout plans on Wednesday. If successful, SMRT will be delisted.

Financial analysts are recommending that retail investors accept Temasek's takeover offer.

They say the $1.68 offer is a good chance for SMRT's 49,000 investors to exit in view of the new rail financing model and uncertainties over the firm's short-term outlook.

But some shareholders say the offer is too low, given that SMRT still has good long-term prospects if it overcomes immediate challenges.

SATISFIED WITH PRICE

I could use this money to buy other shares. Dividends going forward are not expected to be very high... The company is also under public pressure not to raise fares.

POLYTECHNIC LECTURER RONALD NG, who holds 100,000 SMRT shares. He is happy with the $1.68 offer.

The offer came after the Government announced a new rail financing framework (NRFF) last Friday.

Under it, SMRT will dispose of its rail assets to the Land Transport Authority (LTA) for close to $1 billion.

In return, SMRT will pay a licence fee to LTA for the rights to operate the lines with effect from Oct 1.

The terms of the NRFF fell short of market expectations and prompted analysts to slash their forecasts for SMRT.

Yesterday, at least five brokerages advised shareholders to accept the takeover offer.

"The terms of the (NRFF) capped much of the earnings upside for (SMRT's) rail business," said UOB Kay Hian analysts Thai Wei Ying and Andrew Chow in a research note.

Azure Capital chief executive Terence Wong said: "I don't think investors are being short-changed."

Samsung Asset Management, which owned about 30,000 shares in SMRT as of March 31, told Bloomberg it will accept the offer.

Other analysts pointed out that there is room for SMRT's earnings to grow in the long run, but retail investors may be unwilling to wait.

"The privatisation offer of $1.68 per share is not appealing to long- term investors," Deutsche Bank analysts Joshua Lee and Joe Liew noted.

"However, we believe shareholders might find themselves considering acceptance of the offer anyway.

"Conversations with investors indicate concerns about shorter- term issues such as declining returns... and continued scrutiny from unhappy public commuters (which translates to increased political risk)."

Polytechnic lecturer Ronald Ng, who holds 100,000 SMRT shares, is happy with the $1.68 offer.

"I could use this money to buy other shares. Dividends going forward are not expected to be very high... The company is also under public pressure not to raise fares," he said.

A version of this article appeared in the print edition of The Straits Times on July 22, 2016, with the headline 'SMRT shares rise but stay below offer price'. Print Edition | Subscribe