CGS-CIMB Research is maintaining its “add” call and target price of $3.60 on SBS Transit.

This call is pegged to the company’s 5-year historical average price-to-earnings of 13.2x, explain analysts Ong Khang Chuen and Darren Ong say in a Feb 9 flash note.

They believe it will give the counter a 21.6% upside from its $2.96 price on Feb 9.

Their move follows the bus and rail operator’s 4QFY2020 results which came in “above expectations”.

The company had reported a net profit of $27.1 million, up 65% y-o-y. This drove its FY2020 net profit to $79 million. Albeit down 2.9% y-o-y, it is “at 105% of our previous forecast due to better-than-expected cost control,” the Ongs say.

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See: SBS Transit reports FY2020 earnings of $79.0 mil, thanks to government grants of $109.8 mil


They add that the company’s earnings recovery was underpinned by: the extended aid from the Jobs Support Scheme (JSS) as well as a recovery in rail ridership as more employees returned to work.

Going forward, the analysts foresee that SBS Transit is on the road to a new normal given the low Covid-19 case count in the community and the efforts in ramping up the roll-out of the vaccine here.

In light of this they “expect a further relaxation in social-distancing measures in the 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-2021, 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,” the analysts add.

SBS Transit – like other companies in Singapore – is now coping with the tapering in JSS receivables to $28 million in FY2021. In comparison, the scheme had paid out $110 million in FY2020.

However, the analysts still expect the transport provider to report a stronger net profit of $80.8 million in FY2021, up 2.3% y-o-y from FY2020.  

They are also looking at earnings improving on the recovery in ridership as well as potential for SBS Transit’s dividend policy being revised higher in FY2021 due to its strong cash flow generation and balance sheet position.

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Comfort Delgro

SBS Transit’s parent company Comfort Delgro’s FY2020 results will be announced on Feb 15. The analysts, who have an ‘add’ call on the counter at a target price of $1.70, are looking forward to an improvement in its earnings.

They are expecting net profit to come in at $51 million, up 30% q-o-q but down 33% y-o-y. 

However, they caution that the company’s dividends may be lowered since both its subsidies – SBS Transit and VICOM have lowered their payout ratio.

SBS Transit’s dividend payout ratio was down to 25% from 50%, while that for VICOM was down to 90% from 120% previously.

Assuming a dividend payout ratio of 50% in FY2020 (compared to 80% in FY2019), they predict that the counter’s final dividend per share would come in at 1.6 cents, thereby giving it a dividend yield of 1.0%.

Shares of Comfort DelGro closed down 10 cents or 0.63% to $1.57 on Feb 11, while that for SBS Transit was also down 10 cents or 0.33% to $2.96.