More woes at SMRT Corporation

SMRT Corporation (SGX: S53) released its results for the third quarter of 2014 (3Q 2014) last week. Revenue for the quarter was up 4% year-on-year to S$293 million. However, the company’s net profit had plunged 44% to S$14 million.

SMRT derives revenue from ridership of its trains, LRTs (light rail transit) and buses – collectively known as “fare sources” – and also from non-fare sources such as taxis, rental, advertising and engineering and other services. 74%, or S$216 million, of its 3Q 2014 revenue came from fare sources while non-fare sources contributed to the rest.

Revenue from trains and buses rose 2.4% and 3.3% year-on-year respectively but the revenue from LRTs dipped 2.2% year-on-year.  As for the non-fare segment, rental, advertising and engineering and other services all saw year-on-year revenue increases of 11%, 27%, and 47% respectively. The taxi service on the other hand, saw a revenue decline of 4%.

As for SMRT’s operating profits, the fares segment saw a loss of S$9 million compared to a profit of S$7 million in the corresponding period a year ago. The non-fares segment had an operating profit of $27 million, a 6% year-on-year increase. The loss for the fare segment was mainly due to a rise in operating expenses, which went up 10.6% to $284 million on the back of higher staff costs and depreciation expenses.

The company’s net profit margin for the quarter was at 4.9%, which was quite a fall from the margins of 9% that were achieved in the previous year. At its current profit margin, SMRT is only able to generate around five cents of profit for every dollar of revenue.

Let’s turn our attention to the balance sheet. As of 31 December 2013, the firm had total borrowings of S$629 million while its cash balance stood at $99 million. SMRT’s balance sheet had deteriorated quite a fair bit since the end of the first quarter of its current financial year (31 March 2013) where it carried S$333 million in cash while having only S$609 million in total debt.

To give further colour on how the company’s balance sheet had weakened, net gearing for the quarter stood at 0.64 while the metric was only at 0.08 on 31 March 2013. SMRT’s net gearing had went up predominantly due to the payment for 17 trains and operating assets that were taken over from the Land Transport Authority.

During the reported quarter, SMRT generated S$50 million of cash from its operations, a 16% drop from the previous year. Capital expenditures, on the other hand, was at S$90 million which meant that the company did not generate any free cash flow for the quarter.

SMRT’s President and Chief Executive Officer, Mr Desmond Kuek, said: “Our fare business continues to face cost pressures arising from ongoing efforts to meet heightened demands on service, reliability and capacity. The impact of rising costs will be mitigated partially next year by the recently approved fare adjustments, and our continuing efforts to drive higher productivity and cost efficiency. We are engaging the authorities on a timely transition to a viable and sustainable model for the Trains and Bus businesses. We will continue to leverage on SMRT’s core engineering competency and commercial expertise to support business expansion in both fare and non-fare businesses. Sportshub is expected to commence operations within the next few months and we will continue to explore rail business opportunities overseas.”

SMRT will be operating the commercial retail space at Sportshub when it opens to the public.

Shares of SMRT closed at S$1.06 on Friday, representing a 34% decline over the last 12 months. In contrast, the general market, as represented by the Straits Times Index (SGX: ^STI), only dipped by 8%.

Another publicly-listed land transport operator, ComfortDelGro Corporation (SGX: C52) will be releasing its quarterly earnings on 13th February 2014. Investors of SMRT might also want to check that out to have a better picture on the competitive landscape that land transport operators are seeing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.