Money Talk: SMRT, Sembcorp, F&N

While SMRT's revenue for the first half of its 2015 financial year (1HFY15) was in line, its $48 million profit made up 61 per cent of our full-year estimate. -- ST PHOTO: DESMOND WEE  
While SMRT's revenue for the first half of its 2015 financial year (1HFY15) was in line, its $48 million profit made up 61 per cent of our full-year estimate. -- ST PHOTO: DESMOND WEE  

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. SMRT Corp

Broker: OSK-DMG

While SMRT's revenue for the first half of its 2015 financial year (1HFY15) was in line, its $48 million profit made up 61 per cent of our full-year estimate. In 2QFY15, SMRT reported a third sequential rise in profit to $25 million (+13% quarter-on-quarter, +75% year-on-year). Both bus and train operations witnessed strong growth, aided by improved ridership, fare increase and better cost management. Management highlighted that productivity gains and lower energy costs as the key drivers of lower costs and improved margins.

SMRT's management continued to highlight that discussions with the Land Transport Authority (LTA) about the new rail financing framework are ongoing and did not provide a clear timeline for conclusion of the deal. We reiterate that in the event of government financing, the capital expenditure may only strengthen SMRT's balance strength as expenses would simply be transferred from depreciation to leasing expenses. While a cost-plus model will be a positive for SMRT, we believe it is unlikely to be permitted.

SMRT is looking to gradually replace its old taxi fleet with new taxi models, which will enable it to earn higher rental rates. The recent tie-up with Hailo taxi booking app is aimed at improving its response time to taxi booking as its aging call centre needs renewal.

SMRT's share price has already appreciated 26 per cent year-to-date and the uncertainty over the time frame and details of the LTA's rail financing framework will likely limit the upside to its share price performance.

Upgrade to NEUTRAL from Sell with a target price of $1.50

2. Sembcorp Marine

Broker: OCBC

Sembcorp Marine announced on Monday that that its subsidiary PPL Shipyard has won a US$240 million contract to build a jack-up drilling from BOT Lease Co, a leasing company of The Bank of Tokyo-Mitsubishi UFJ. The contract value may be higher on additional specification requirements to be negotiated among the parties involved.

Scheduled for delivery at the end of Oct 2016, the new rig (Hakuryu 14) will be built based on PPL Shipyard's proprietary Pacific Class 400 design. This will be the second jack-up rig that PPL Shipyard is building for BOT Lease, and brings SMM's total order win to S$4.1 billion, slightly exceeding our full year estimate of S$4 billion.

Maintain BUY with a fair value estimate of $4.18

3. Fraser & Neave

Broker: CIMB

Arbitrators have ruled in favour of Myanma Economic Holdings (MEHL) as to his rights under a joint venture deal to buy F&N's 55 per cent stake in Myanmar Brewery, maker of Myanmar Beer. Myanmar Brewery was the last crown jewel of F&N, with EBIT (earnings before interest and taxes) of 44 per cent year-on-year and accounting for 30 per cent of earnings, by our estimates. We expect its share price to react negatively.

The positive out of the arbitration was a nod that the original US$246 million offer from MEHL is grossly inadequate. A fair value will be decided duly. By switching to a sum-of-parts basis, we have cut our target price as we do not expect MEHL to pay valuations implied by the market.

Downgrade to REDUCE from Add, with target price lowered to $2.98 from $3.15