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SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
<p>Company Note</p>
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<h2>SBS Transit Ltd</h2>
<h3>On the road to new normal</h3>
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<p>SBUS reported a FY20 net profit of S$79.0m(-2.9% yoy), slightly above our expectations, supported by better-than-expected cost control.</p>
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<p>Ridership recovery in FY21F could bes upported by furtherr elaxation in social-distancing measures, with a ramp-up of vaccine roll-out in Singapore.</p>
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<p>Reiterate Add and TP of S$3.60.</p>
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<p><strong>4QFY20 above expectations</strong><br>SBS Transit Ltd (SBUS) reported a 4Q20 net profit of S$27.1m (+40% qoq, +65% yoy), bringing its FY20 net profit to S$79.0m (-2.9% yoy), above expectations at 105% of our previous forecast due to better-than-expected cost control. Earnings recovery was underpinned by: 1) continuous JSS support, and 2) continued rail ridership recovery. As SBUS’s FY20 profitability was mainly supported by government grants, dividend payout ratio was lowered to 25% (FY19: 50%). Final DPS of 6.3 Scts implies a yield of 2.1%.</p>
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<p><strong>Returning to a new normal</strong><br>With: 1) community cases of Covid-19 remaining low, and 2) a further ramp-up of the vaccine roll-out in Singapore, we expect further relaxation in social-distancing measures in coming months, which could support public transport ridership recovery. We forecast rail ridership to only recover to 90% of pre-Covid-19 levels by end-2021F, as we believe that in the new normal, there will be less commuting due to increased flexibility in work arrangements, which may not necessitate daily travels to work. Despite significant tapering in JSS receivables to c.S$28m in FY21F (FY20: S$110m), we believe SBUS can still report a stronger net profit of S$80.8m (+2.3% yoy).</p>
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<p><strong>Read through to ComfortDelgro’s 4QFY20’s results</strong><br>Parent company ComfortDelgro (CD SP, Add, TP: S$1.70) will be reporting its FY20 results on 15 Feb. In line with SBUS’s sequential earnings improvement trend, we forecast CD to report a net profit of S$51m (+30% qoq, -33% yoy). However, as both of CD’s subsidiaries have lowered their FY20 dividend payout ratio (SBUS: 50% to 25%; VICOM: 120% to 90%), we believe CD’s dividends could be lowered as well. Assuming a 50% DPR (FY19: 80%), CD’s final DPS could come in at 1.6 Scts, implying a dividend yield of 1.0%.</p>
<p><strong>Reiterate Add and TP of S$3.60</strong><br>Reiterate Add as we expect continued earnings improvement riding on ridership recovery and see potential for dividend policy to be revised higher in FY21F, given strong cash flow generation and strengthened balance sheet position (SBUS entered into net cash position of S$60m as of end-FY20). We fine-tune our FY21F-22F by 0.2%-0.3%; our TP remains unchanged at S$3.60 as we rollover our valuation to end-FY22F, pegged to SBUS’s 5-year historical average P/E of 13.2x. Re-rating catalysts include potential rail financing framework reforms; downside risks include slower-than-expected rail ridership recovery.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.
Company Note

SBS Transit Ltd
On the road to new normal



SBUS reported a FY20 net profit of S$79.0m(-2.9% yoy), slightly above our expectations, supported by better-than-expected cost control.


Ridership recovery in FY21F could bes upported by furtherr elaxation in social-distancing measures, with a ramp-up of vaccine roll-out in Singapore.


Reiterate Add and TP of S$3.60.



4QFY20 above expectations SBS Transit Ltd (SBUS) reported a 4Q20 net profit of S$27.1m (+40% qoq, +65% yoy), bringing its FY20 net profit to S$79.0m (-2.9% yoy), above expectations at 105% of our previous forecast due to better-than-expected cost control. Earnings recovery was underpinned by: 1) continuous JSS support, and 2) continued rail ridership recovery. As SBUS’s FY20 profitability was mainly supported by government grants, dividend payout ratio was lowered to 25% (FY19: 50%). Final DPS of 6.3 Scts implies a yield of 2.1%.

Returning to a new normal With: 1) community cases of Covid-19 remaining low, and 2) a further ramp-up of the vaccine roll-out in Singapore, we expect further relaxation in social-distancing measures in coming months, which could support public transport ridership recovery. We forecast rail ridership to only recover to 90% of pre-Covid-19 levels by end-2021F, as we believe that in the new normal, there will be less commuting due to increased flexibility in work arrangements, which may not necessitate daily travels to work. Despite significant tapering in JSS receivables to c.S$28m in FY21F (FY20: S$110m), we believe SBUS can still report a stronger net profit of S$80.8m (+2.3% yoy).






Read through to ComfortDelgro’s 4QFY20’s results Parent company ComfortDelgro (CD SP, Add, TP: S$1.70) will be reporting its FY20 results on 15 Feb. In line with SBUS’s sequential earnings improvement trend, we forecast CD to report a net profit of S$51m (+30% qoq, -33% yoy). However, as both of CD’s subsidiaries have lowered their FY20 dividend payout ratio (SBUS: 50% to 25%; VICOM: 120% to 90%), we believe CD’s dividends could be lowered as well. Assuming a 50% DPR (FY19: 80%), CD’s final DPS could come in at 1.6 Scts, implying a dividend yield of 1.0%.
Reiterate Add and TP of S$3.60 Reiterate Add as we expect continued earnings improvement riding on ridership recovery and see potential for dividend policy to be revised higher in FY21F, given strong cash flow generation and strengthened balance sheet position (SBUS entered into net cash position of S$60m as of end-FY20). We fine-tune our FY21F-22F by 0.2%-0.3%; our TP remains unchanged at S$3.60 as we rollover our valuation to end-FY22F, pegged to SBUS’s 5-year historical average P/E of 13.2x. Re-rating catalysts include potential rail financing framework reforms; downside risks include slower-than-expected rail ridership recovery.











(Non-SGX Report) SBS Transit Ltd: On the Road to New Normal