Steadily improving
- SBUS’s 2Q22 net profit of S$19m (+45% yoy) was in line, driven by strong rail ridership recovery as Singapore significantly eased Covid-19 restrictions.
- We expect further earnings recovery in 3Q22F, with further rail ridership improvement and higher revenue from other commercial services.
- Reiterate Add. We think SBUS is in a good position to raise its DPR by endFY22F, given its strong balance sheet and cash generation capabilities.
2Q22: Ridership improvement drove earnings recovery
SBS Transit (SBUS) announced a 2Q22 net profit of S$19m (+23% qoq, +45% yoy), showing good earnings recovery riding on Singapore’s reopening. We deem the set of results as in line, as 1H22 net profit came in at 51% of our FY22F forecast. Excluding government relief and exceptional items, 1Q22 core EBIT improved to S$24m (2Q21: S$3m loss). Profit improvement was driven by: 1) higher rail ridership, 2) changes in Downtown Line rail financing framework, and 3) higher fuel indexation, which allowed SBUS to pass on higher fuel costs (for the bus segment) to LTA. This was partially offset by higher electricity costs to run the rail lines (almost doubled yoy in 1H22). Interim dividend of 5.45Scts (-5% yoy) was declared, with DPR maintained at 50%.
Ridership recovered to 80% of pre-Covid-19 levels in Jul
SBUS’s rail ridership has seen steady recovery since Apr, with the significant relaxation of Covid-19 restrictions in Singapore, and has reached c.80% of pre-Covid-19 levels in Jul 2022 as the Singapore workforce progressively returns to office and nightlife resumes. We expect further rail ridership recovery in the remainder of FY22F, albeit at a slower pace compared to the past 3 months’ trajectory, to reach 85% of pre-Covid-19 levels by endyear, as we expect hybrid work arrangements to be part of the “new normal”. We also expect revenue from other commercial services (advertising, rental of commercial space) to further improve in 2H22F; this should help offset the lower bus revenue from Sep 2022 onwards (lower service fees as part of the new package agreement with Land Transport Authority, alongside changes in the Downtown Line rail financing framework).
Read-through to ComfortDelgro
ComfortDelgro (CD SP) is set to announce its 1H22 results on Fri (12 Aug). We forecast CD to also report sequential profit improvement, with a 2Q22 core EBIT of S$73.3m (+14% qoq, +54% yoy), driven by: 1) lower taxi rental rebates and higher commission fees, and 2) improvement in charter business activity levels in its overseas markets.
Reiterate Add and TP of S$3.40
Reiterate Add. Aside from further earnings recovery driven by ridership recovery, we also see potential for SBUS to raise its DPR by year-end, given its strong cashflow generation and strengthened balance sheet position (net cash of S$247m at end-1H22). Our TP is kept at S$3.40, based on SBUS’s 5-year historical average P/E of 13.2x. Re-rating catalysts include faster improvement in rail ridership recovery. Downside risks include continued hikes in electricity tariffs, which could pressure SBUS’s margins.
