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What You Need To Know About the Latest Results from SMRT Corporation Ltd.

upward green arrow upJust yesterday, public bus and rail transport operator SMRT Corporation Ltd. (SGX: S53) released its results for the first quarter of the financial year ending 31 March 2015 (FY2015). SMRT is one of the two main public transport operators in Singapore; the other major player’s SBS Transit Ltd.  (SGX: S61), which is majority-owned by ComfortDelGro Corporation Limited  (SGX: C52).

SMRT operates in three main business segments: Rail services; bus services; and the highly profitable non-fare segment which includes advertising and rental income. Revenue from the rail and bus services are collectively grouped by SMRT as “Fare business.” Meanwhile, all of SMRT’s other businesses – comprising of Taxi operations, Engineering Services, Other Services, and of course Advertising and Rental – are classed as “Non-Fare business” by the company.

Some basic numbers

For the first quarter of FY2015, revenue increased 4.3% year-on-year to S$297.1 million due to higher revenue across the board except for Other Services and Engineering Services (fortunately, both make up only a tiny portion of the company’s total sales).

Net profit after tax increased by a remarkable 37% to S$22.4 million in the quarter compared to a year ago. Part of that big jump in profit had been due to SMRT trimming down its operating losses in its Fare business from S$5.5 million to S$1.1 million. For some perspective, that’s an improvement of 80%.

Another part of SMRT’s bottom-line growth could be attributed to the 17.4% increase in operating profit from the Non-Fare businesses to S$29.9 million. Most of the individual segments within Non-Fare business had performed well. For instance, operating profit from Taxi operations almost doubled from S$2.3 million to S$4.2 million mainly due to higher rental contribution from a newer fleet and lower diesel tax. As another example, operating profit from Rental also ballooned 13% to S$20 million compared to a year ago.

Financial position

SMRT ended the quarter with a cash balance of S$207.2 million and total borrowings of S$740 million, representing a net-debt position of S$533 million. That’s an improvement over the net-debt position of S$480 million SMRT was in just a quarter ago.

Outlook & valuation

Going forward, the transport operator will continue with its productivity efforts in the new financial year to help mitigate the declining profitability in its Fare business. The company also commented that it “will continue to benefit from growth in its Non-Fare businesses with emphasis on building on its rail engineering capability, seizing out-of-network opportunities in Singapore, and international projects.”

Lastly, SMRT expects that the regulatory changes in the transport industry will bring about brighter prospects for the company; in May this year, the authorities announced sweeping changes to the public bus service industry which would see the government become owners of assets and infrastructure that are required to run public buses. The company also touched on its ongoing talks with regulators on a new rail financing model in its earnings conference call yesterday; it is confident that the rail industry will see changes similar to what has happened with public buses.

At its current share price of S$1.60, SMRT is valued at 36 times trailing earnings. The high valuation came about partly due to the company’s shares rocketing after the announcement of the changes to the public bus industry.

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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 James Yeo doesn’t own shares in any companies mentioned.