SMRT (S53.SG) is off 0.5% at $2.04 after the transport group’s 3Q net profit rose 9.6% on-year to $43 million with revenue +8.5% at US$243.9 million ($313.7 million), as margin concerns limit potential upside. OCBC, which has a Hold rating and $2.16 fair value, says revenue gains were offset by a decline in operating margins, which contracted by 4.5 percentage point on-year to 21.0%.
“Going forward, high operating costs are likely to weigh on SMRT’s performance.” It notes revenue from fare-based operations +8.7% on-year though operating profits slipped 19.8% on-year.
Kim Eng says the results were within expectations; it upgrades the stock to Hold from Sell, raises its target price to $1.97 from $1.75 as it rolls forward its target valuation to FY12.
But it notes the company expects higher staff costs in 4Q11 ahead of the opening of Circle Line Stages 4 and 5 in 2011, while it expects 4Q profit to be hurt by higher scheduled train repair costs.
Orderbook suggests downside likely limited to $2.03.
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