Returning to the new normal
? SBUS’s 1Q22 net profit of S$15.5m (-34% yoy) was in line. Excluding
government grants, operating profit rose 109% qoq/206% yoy to S$19.4m.
? Singapore’s significant easing of Covid-related restrictions in Apr should bode
well for SBUS; we expect further recovery in ridership in coming quarters.
? Reiterate Add. We think SBUS is in a good position to raise its DPR in FY22F
given its strong balance sheet and cash generation capabilities.
Solid set of 1Q22 results
SBS Transit (SBUS) announced 1Q22 net profit of S$15.5m (-33.5% yoy), in line with our
expectations at 21.8% of our FY22F, as we expect further earnings recovery in upcoming
quarters with ridership set to improve along with Singapore’s reopening. Excluding
government relief and exceptional items, 1Q22 core operating profit improved to
S$19.4m (+109% qoq, +206% yoy). Despite flattish ridership trends on a yoy basis,
1Q22’s profit growth was driven by 1) changes in Downtown Line rail financing
framework, 2) fare increase of 2.2% since 26 Dec 2021, and 3) higher fuel indexation
which allowed SBUS to pass on higher fuel costs to LTA.
Significant easing of restrictions to aid ridership recovery
According to Land Transport Authority (LTA), rail and bus ridership recovered to 78% of
pre-Covid levels in the last week of Apr 22 (first week of Jan: 67%), after Singapore
dropped most of its pandemic restrictions, with all employees allowed to return to the
workplace and group size limits removed. As more Singaporeans return to a normalised
life, we expect further recovery in the upcoming quarters, and forecast SBUS ridership to
recover to 85% of pre-Covid level by end-FY22F. This will bode well for SBUS’s rail
revenue, as it bears fare revenue risks for this segment. We forecast topline to recover
10.6% yoy to S$1.45bn for FY22F.
But higher electricity costs may eat into margins
Despite rising oil prices, SBUS has the ability to pass on higher fuel costs (for bus
operations) through monthly fuel indexation mechanisms. However, this is not the case
for rail operations, as fares are adjusted annually. We think rising electricity costs could
pressure margins – SBUS note that electricity costs have risen by more than 40% yoy.
Our FY22-24F EPS forecasts are hence lowered by 1.2-4.6%.
Reiterate Add
Reiterate Add. With ridership recovery in FY22F, we expect SBUS to return to profit
growth in 2Q despite the absence of government grants. We also see potential for SBUS
to raise its DPR this year, given its strong cash flow generation and strengthened balance
sheet position (SBUS had a net cash position of S$204m at end-FY21). Our TP is kept to
S$3.40, based on SBUS’s 5-year historical average P/E of 13.2x. Re-rating catalysts
include faster than expected improvement in rail ridership recovery. Downside risks
include continued hikes in electricity tariffs which could pressure SBUS’ margins.