SMRT CorporationLtd’s Latest Earnings: Sputtering Start to the Fiscal Year

SMRT Corporation Ltd (SGX: S53) reported its first-quarter earnings for its financial year ending 31 March 2017 (FY2017) on Monday. The reporting period was for 1 April 2016 to 30 June 2016.

As a quick background, the business of SMRT can be divided into eight different segments: Train operations, Light Rail Transit (LRT) operations, Bus operations, Taxi operations, Rental, Advertising, Engineering, and Others. The first two together are referred to as the Rail business. The rest are considered Non-Rail businesses.

You can learn more about the transport provider here or catch up with the results from its prior quarter here.

Financial highlights

The following’s a rundown on some of the financial figures for SMRT:

  1. Revenue for SMRT fell by 2.0% year-on-year to $313.9 million.
  2. But, net profit attributable to shareholders for the reporting quarter declined by 22.9% year-on-year to $15.5 million.
  3. Consequently, earnings per share (EPS) decreased by 23% to 1.02 cents, down from the 1.32 cents seen in the first-quarter of FY2016.
  4. For the first-quarter of FY2017, cash flow from operations was a negative $7.6 million with capital expenditure clocking in at $96.9 million. SMRT thus generated negative free cash flow of over $104 million, down significantly from the negative $41.5 million seen a year ago ($40.6 million in positive cash flow from operations and $82.1 million in capex).
  5. As of 30 June 2016, SMRT had $135.2 million in cash and equivalents and $755.5 million in debt, giving it a net debt position of $620.3 million. This is an improvement from the net debt position of $686.9 million that the land transport operator had at the end of June 2015.

In all, SMRT saw its revenue growth grind to a halt. Meanwhile, its profit fell and free cash flow went deeper into negative territory. The positive takeaway is that the company’s balance sheet had improved.

The results were announced with two important backdrops: (1) Temasek’s offer to privatise SMRT; and (2) the potential transition of SMRT’s Rail business into the New Rail Financing Framework (NRFF).

Operational highlights

SMRT’s top-line was hit in several areas.

The Rail business brought in $166.8 million in revenue for the reporting quarter, down 2.0% from a year ago. The segment’s operating loss widened significantly from $5.3 million a year ago to $9.4 million mainly due to a weakening of the Train Operations segment.

Elsewhere, the Non-Rail businesses did not fare any better as it too registered a 2.0% decline in revenue to $147.0 million for the reporting quarter. Operating profit was down by 12.3% year-on-year. Operating profits were down in all areas except for the Advertising and Other Services segments.

Desmond Kuek, SMRT’s chief executive, had summed up the quarter in the earnings release with the statement below:

“SMRT is fully committed to delivering safe and reliable public transport services in Singapore. We welcome the proposed transition of our lines to the new rail financing framework, which is an improvement to the current framework.”

However, we are also cognizant that SMRT Trains will continue to face significant business risks associated with an ageing and expanded network and regulatory challenges which are outside the control of the company.

The proposed Scheme will allow SMRT to better fulfil its role as a public transport operator to deliver high quality services and operational reliability for the benefits of our commuters, without the pressure of short-term market expectations. It also provides the opportunity for minority shareholders to monetise their holdings for cash.

We will be convening a Scheme meeting which provides the opportunity for shareholders to consider the Scheme and decide on its outcome.”

The road ahead

On the road ahead, SMRT expects its business environment to remain challenging. The company expects operating expenses to continue rising as a result of the need to “further strengthen performance in rail reliability, maintainability, availability, capacity and safety.” SMRT added:

“Under the current financing framework, asset renewal of the ageing system and an expanded fleet will result in further increase in depreciation.”

The company also mentioned that it is “making progress” in its discussions with the authorities on the NRFF.

Here’s SMRT on the other parts of its business:

“Bus operations are expected to improve compared to FY2015. SMRT Buses will continue to participate in the tenders under the Government’s new bus contracting model. We will be discussing with the authorities on the contract terms for the remaining bus services beyond the license expiry in August 2016.

However, the outcome of these will not have an impact on the results of the Group for the next twelve months.

The Group will continue to explore growth anchored on the strengths of its core public transport operations and adjacent capabilities, locally and overseas.”

At its closing share price of $1.63 on Monday, SMRT traded at around 24 times trailing earnings and has a dividend yield of around 2.5%.

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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.