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SMRT shareholders can look forward to their generous dividends for a while yet despite the transport firm's rocky few weeks with the breakdowns.
Analysts believe the company has the financial ability to continue dispensing its traditionally high dividend, even if its maintenance and repair bills escalate.
UBS analyst Cheryl Lee noted in a report last Wednesday: 'We believe SMRT's financial ability to maintain its absolute level of dividend per share is high, even if repair costs increase.'
Pressure piles on SMRT
In the past two financial years, SMRT has rewarded shareholders with a dividend of 8.5 cents a share. This worked out to a dividend yield of 4.7 per cent for the financial year ended March last year and 4.1 per cent for the year to March, according to UBS.
'SMRT generates about $300 million operating profit annually from which it funds dividends of about $130 million and expected capital expenditure of about $180 million,' said Ms Lee.
But she warned that if public frustration 'does not dissipate by April next year, when SMRT is expected to announced its results for (the 2012) financial year, the management's ability to commit to its generous dividend policy might be affected'.
Ms Lee noted that SMRT's policy is to pay out at least 60 per cent of its after-tax profit, or keep to its absolute dividend payout level. 'If SMRT was to signal a shift in its dividend policy, we believe the first step would be to remove the commitment to maintaining the absolute level of dividend per share,' she said.
Separately, she believed that SMRT might incur a fine of between $2 million and $3 million for the disruptions which affected an estimated 222,400 passengers in total, following the breakdown on the Circle Line on Dec 14, and breakdowns on the North-South Line on Dec 15 and Dec 17.
Her estimate was based on the $387,176 fine levied on the transport operator for a seven-hour breakdown on the East-West Line in January 2008 when about 57,000 passengers were affected.
Ms Lee noted that her calculations suggest 1,713 train trips had been added weekly since April 2008, and reckoned that the gradual, rising strains on the 24-year-old MRT network might have contributed to the breakdowns.
While she is keeping her 'neutral' call on SMRT, she has trimmed her 12-month target price from $1.85 to $1.70.
But OCBC Investment Research analyst Lim Siyi believes the recent selling pressure on SMRT might be only temporary, despite the blow to the firm's reputation.
'Ridership levels will continue to rise as car ownership costs stay elevated, and the train system remains an essential part of the daily commute for most people,' he said.
But while he does not anticipate train ridership to show a sharp dip due to a lack of viable alternatives for commuters, he also expects SMRT to face surging repair and maintenance bills.
He is cutting his forecast for SMRT's pre-tax profit for next year by 3.4 per cent to $180.6 million, but keeping fair value on the stock at $2.04.
But Kim Eng Research takes a contrarian view, suggesting that investors should not underestimate the long-term complications associated with the train breakdowns.
'Plans are afoot to build two additional lines... Even though the bids to operate the new lines are not yet open, we believe that the Land Transport Authority will take the recent incidents into consideration when awarding the tenders in future,' it added.
Therefore, Kim Eng has cut its call on SMRT to 'sell' from 'hold', with a reduced target price of $1.50.
SMRT ended flat at $1.75 with 422,000 shares traded on Tuesday, after falling 3.8 per cent since Monday last week.
[email protected]
Analysts believe the company has the financial ability to continue dispensing its traditionally high dividend, even if its maintenance and repair bills escalate.
UBS analyst Cheryl Lee noted in a report last Wednesday: 'We believe SMRT's financial ability to maintain its absolute level of dividend per share is high, even if repair costs increase.'
Pressure piles on SMRT
In the past two financial years, SMRT has rewarded shareholders with a dividend of 8.5 cents a share. This worked out to a dividend yield of 4.7 per cent for the financial year ended March last year and 4.1 per cent for the year to March, according to UBS.
'SMRT generates about $300 million operating profit annually from which it funds dividends of about $130 million and expected capital expenditure of about $180 million,' said Ms Lee.
But she warned that if public frustration 'does not dissipate by April next year, when SMRT is expected to announced its results for (the 2012) financial year, the management's ability to commit to its generous dividend policy might be affected'.
Ms Lee noted that SMRT's policy is to pay out at least 60 per cent of its after-tax profit, or keep to its absolute dividend payout level. 'If SMRT was to signal a shift in its dividend policy, we believe the first step would be to remove the commitment to maintaining the absolute level of dividend per share,' she said.
Separately, she believed that SMRT might incur a fine of between $2 million and $3 million for the disruptions which affected an estimated 222,400 passengers in total, following the breakdown on the Circle Line on Dec 14, and breakdowns on the North-South Line on Dec 15 and Dec 17.
Her estimate was based on the $387,176 fine levied on the transport operator for a seven-hour breakdown on the East-West Line in January 2008 when about 57,000 passengers were affected.
Ms Lee noted that her calculations suggest 1,713 train trips had been added weekly since April 2008, and reckoned that the gradual, rising strains on the 24-year-old MRT network might have contributed to the breakdowns.
While she is keeping her 'neutral' call on SMRT, she has trimmed her 12-month target price from $1.85 to $1.70.
But OCBC Investment Research analyst Lim Siyi believes the recent selling pressure on SMRT might be only temporary, despite the blow to the firm's reputation.
'Ridership levels will continue to rise as car ownership costs stay elevated, and the train system remains an essential part of the daily commute for most people,' he said.
But while he does not anticipate train ridership to show a sharp dip due to a lack of viable alternatives for commuters, he also expects SMRT to face surging repair and maintenance bills.
He is cutting his forecast for SMRT's pre-tax profit for next year by 3.4 per cent to $180.6 million, but keeping fair value on the stock at $2.04.
But Kim Eng Research takes a contrarian view, suggesting that investors should not underestimate the long-term complications associated with the train breakdowns.
'Plans are afoot to build two additional lines... Even though the bids to operate the new lines are not yet open, we believe that the Land Transport Authority will take the recent incidents into consideration when awarding the tenders in future,' it added.
Therefore, Kim Eng has cut its call on SMRT to 'sell' from 'hold', with a reduced target price of $1.50.
SMRT ended flat at $1.75 with 422,000 shares traded on Tuesday, after falling 3.8 per cent since Monday last week.
[email protected]
