Analysts downgrade SMRT stock to 'sell'

Analysts downgrade SMRT stock to 'sell'
By Linette Lim | Posted: 06 December 2012 2326 hrs

SINGAPORE: Analysts have been downgrading SMRT's stock from 'buy' to 'sell' over the past year, with the company currently facing zero 'buy' calls and 12 'sell' ratings.

Analysts agree that higher repair and maintenance costs, as well as pressure to deliver better service, has left the company in a tight squeeze.

SMRT CEO Desmond Kuek said that the company's focus on profit was one reason why the transport firm has been facing problems.

He added that the firm will undergo restructuring to help it improve service standards.

In a filing on the Singapore Exchange on December 5, Mr Kuek said SMRT will undergo a restructuring exercise to help it improve service standards.

While this is good news for commuters, analysts say shareholders of SMRT will likely find themselves at the losing end.

"Shareholders are likely to see the cost of the company climb up, and this will hit the profits and ultimately the distribution," said Executive Director of DMG & Partners Research Terence Wong, adding that many investors bought into SMRT because of the company's history of good dividend payouts.

However analysts have also acknowledged that local transport firms battle declining profits and rising costs.

"Margins for bus (transport operators) are actually rather bad. If you look at ComfortDelGro and SMRT, both of their bus operations are losing money. For rail, they are still making money, but their margins have come off from previously," said Andy Sim, vice president of Investment Research at DBS Vickers Securities.

ComfortDelGro has expanded its business beyond Singapore over the years. The company reported that its overseas operations made up 45.8 per cent of its operating profit in 2011.

"ComfortDelGro has always been (looking at) overseas expansion and they have done relatively well, so I believe that will continue. For SMRT, what we'll probably see is that the focus will be domestic, and what the management has said is that they will focus on delivering better service to commuters," said Mr Sim.

SMRT's dividend payout fell 10 per cent on-year in 2012.

Shares of SMRT Corporation have also declined over 7 per cent over the past year, compared to a 20 per cent increase for ComfortDelGro's stock.

- CNA/jc

- wong chee tat :)