Optimism abounds post-Covid-19
? SBUS’s FY21 core NP of S$67.4m (-15% yoy) was above expectations. Govt relief was a big help as ridership only showed a better recovery at end-2021.
? Further reopening in Singapore should drive mobility recovery. We believe the new framework agreement with LTA is a net positive for SBUS in FY22F.
? Reiterate Add. We think SBUS is in a good position to lift its dividend payout in FY22F given its strong balance sheet and cash generation capabilities.
FY21: Government relief a big help
Reversing a one-time write-off of S$15.8m (early replacement of buses as part of revised framework agreement with Land Transport Authority [LTA]), SBUS’s FY21 core net profit came in at S$67.4m (-15% yoy), above expectations at 114%/119% of our/Bloomberg consensus’ forecasts. The key surprise was higher government reliefs – SBUS received another S$7.8m in 4Q21 (without which results would be in line with forecasts). Core 4Q21 EBIT (excl. government relief) rose to S$9.3m on higher ridership nearer end-2021.
Expect ridership recovery in FY22F as Singapore reopens
We forecast SBUS’s rail ridership to recover to 85% of pre-Covid levels by end-FY22F (Jan 2022: 68%) as Singapore’s economy reopens further. Despite the recent rise in Covid-19 cases, the Singapore government remains committed to “living with Covid-19”. Finance Minister Lawrence Wong said the government is aiming to take further significant steps to ease Covid-19 restrictions after passing the peak of the current wave, which can happen in the coming weeks. That said, with hybrid work arrangements increasingly prevalent, we think it is unlikely ridership will return to pre-Covid levels in the near future. We forecast ridership to return to 90%/92% of pre-Covid levels by FY23F/24F.
New framework agreement with LTA kicks in Jan 2022
We believe the new framework agreement will be a net positive for SBUS for FY22F, helping to partially offset the impact of the absence of Jobs Support Scheme support. Under the new agreement effective Jan 2022, SBUS’s Downtown Line (DTL) has undergone a license charge structure change, which we estimate will help lower SBUS’s rail segment losses by at least S$30m p.a. from FY22F onwards. Meanwhile, the lower service fee for renewed bus contracts will only be effective Sep 2022 onwards.
Reiterate Add
Reiterate Add as we expect an earnings improvement in FY22F from ridership recovery, and see potential for a higher dividend policy, given its strong cash flow generation and strengthened balance sheet position (SBUS has a net cash position of S$204m as of end-FY21). We cut our FY22F-23F EPS by 9.1-11.7% to factor in slower ridership recovery and impacts from the new LTA framework agreement. Our TP is lowered to S$3.40 as we roll over our valuation base year, still pegged to SBUS’s 5-year historical average P/E of 13.2x. Re-rating catalysts include news flows on relaxation of Covid measures. Downside risks include slower-than-expected rail ridership recovery.