Where Is SMRT Corporation Travelling To Next?

SMRT Corporation Ltd.  (SGX: S53) has been a dud over the last five plus years. Shares of the company are down 20% from 1 April 2010 to its closing price last Friday (28 November 2014). During the same timeframe, the company distributed a total of about 29 cents per share in dividends. By comparison, the capital gains of the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX: ^STI), was 14.5% for the same duration.

Although the shares of SMRT have stalled, as Foolish investors, we can still look behind the train doors to get a better sense of its prospects for the future.

A closer look

The business of SMRT can be divided into seven different segments – Train operations, Light Rail Transit (LRT) operations, Bus operations, Taxi Operations, Rental, Advertising, and Engineering and Others.

The Train, LRT, Bus, and Taxi operations are pretty self-explanatory. SMRT runs the Mass Rapid Transit (MRT) trains for the North-South line, East-West line, and the Circle Line, connecting 78 stations in total. The company also runs the Light Rapid Transit (LRT) service, connecting 14 LRT stations in Bukit Panjang.

For the Bus operations, the transport company runs 101 bus services mainly within the western and north-western areas in Singapore with a fleet size of 1,200 buses. As for the Taxi bsuiness, SMRT has one of the larger taxi fleets in Singapore with over 3,300 taxis, though this pales in comparison with the 16,000-odd taxi fleet of ComfortDelgro Corporation Limited (SGX: C52).

Besides transportation, SMRT also has other sources of revenue. For instance, the Rental segment refers to the sales generated from the 36,800 square meters of retail rental space at the 78 MRT stations that the company operates. The Advertising segment covers the multi-sensory media advertising services that SMRT offers. Lastly, the Engineering and Other services refers to sales from its consultancy and project management services.

 Where to Next for SMRT Corporation? - 1

Source: Company Earnings Report

In its last five completed financial years, SMRT has grown its revenue from around $900 million to about $1.2 billion. For the financial year ended 31 March 2014 (FY2014), Train operations made up a little over half of total revenue. The Train operations was also the largest contributor to the company’s revenue growth over the past five financial years. Taxi operations and the Rental segments were also pretty strong contributors in terms of sales growth in that period.

Revenue for the Train operations and Bus operations benefit from increased ridership or average fare. We can look at the five year trends to get some clues.

Where to Next for SMRT Corporation? - 2

Source: Company Earnings Presentation; Annual Report

The total ridership for the Train operations rose 32.5% from 536.6 million in FY2010 to 710.8 million in FY2014. The Train operations benefited from the phased opening of the Circle Line. Similarly, the Bus operations also experienced increased ridership from 290.8 million in FY2010 to 350.5 million in FY2014. These increases over the past five financial years have driven much of the revenue growth for SMRT.

Foolish take away

SMRT has managed to grow its revenue over its past five completed financial years. Much of SMRT’s growth comes from the increase in ridership of its Train operations and its Bus operations, as well as the increase in the number of associated MRT stations that it manages. The company had also benefitted from an increased taxi fleet.

As of its closing price last Friday (28 November 2014) of $1.63, SMRT traded at a trailing earnings ratio of about 31, and has a dividend yield of around 1.7%.

The exercise above is to look at SMRT’s sales growth alone. So far, there is nothing much which informs the individual investor on why the transport outfit’s shares have underperformed the market over the past five financial years. As a next step, we should observe if the top-line growth trickles down to the bottom-line for it to sustain its dividend pay-outs. But, that’s for the next article, which you can read here.


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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 Chin Hui Leong doesn’t own shares in any companies mentioned.