CGS-CIMB Research analyst Ong Khang Chuen has kept his “add” call on SBS Transit with an unchanged target price of $3.40 as the public transport operator’s net profit of $19 million for the 2QFY2022 ended June stood in line with his expectations.
The 45% y-o-y improvement in the quarter’s net profit showed “good earnings recover riding on Singapore’s reopening”, notes Ong.
In his report dated Aug 10, the analyst foresees SBS Transit to see further rail ridership recovery in the remainder of the FY2022 albeit at a slower pace compared to the trajectory seen in the past three months.
“SBS Transit’s rail ridership has seen steady recovery since April, with the significant relaxation of Covid-19 restrictions in Singapore, and has reached 80% of pre-Covid-19 levels in July as the Singapore workforce progressively returns to office and nightlife resumes”, the analyst notes.
To this end, Ong expects the group to reach 85% of its pre-Covid-19 levels by the end of the year as hybrid work arrangements are expected to be the “new normal”.
“We also expect revenue from other commercial services (advertising, rental of commercial space) to further improve in 2HFY2022; this should help offset the lower bus revenue from September onwards (lower service fees as part of the new package agreement with Land Transport Authority, alongside changes in the Downtown Line rail financing framework),” he writes.
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Aside from the further recovery in earnings, Ong is expecting SBS Transit to raise its dividend payout ratio (DCR) by the year-end, given its strong cashflow generation and strengthened balance sheet position. The group’s net cash stood at $247 million as at end June. The group declared an interim dividend of 5.45 cents per share with DPR maintained at 50%.
SBS’s parent company, ComfortDelGro (CDG) is set to announce its half-year results on Aug 12. Ong has estimated CDG to also report sequential profit improvement, with a 2QFY2022 core EBIT of $73.3 million (+14% q-o-q, +54% y-o-y).
“[This is] driven by: lower taxi rental rebates and higher commission fees and improvement in charter business activity levels in its overseas markets,” he says.
Shares in SBS Transit closed 1 cent higher or 0.35% up at $2.88 on Aug 12.
