SINGAPORE : When news broke that both public transport operators
had won an overall 2.4 percent fare hike effective July, share
investors began favouring one company over the other.
The Public Transport Council had said the fare increase would raise
revenue for each operator by S$13 million to S$14 million.
As a result, SMRT shares surged 6.8 percent on Monday, but gave up
2.7 percent on Tuesday.
In contrast, Comfort Delgro was more muted, gaining 0.6 percent
yesterday, but giving it all back today.
Still, analysts believe it is Comfort Delgro that is headed for
better times, and they believe SMRT will be left behind
instead.
Analysts say SMRT's 6.8 percent share surge on Monday was overdone,
and smacks of a knee-jerk reaction.
OCBC Research went so far as to downgrade SMRT from "buy" to
"hold".
OCBC says the stock has already risen 20 percent in one month, and
at Tuesday's S$1.07, is near its fair value of S$1.13.
NetResearch Asia believes SMRT has already overshot its fair value
of just 98 cents.
Said Kevin Scully, managing director of NetResearch Asia, "SMRT is
probably fairly valued already. My fair value is 98 cents. It's
currently about 8 to 10 percent overvalued. And given that interest
rates are rising, and it's a yield play, you will probably see it
move closer to the one dollar level."
Said Gabriel Yap, senior dealing director at Phillip Securities,
"For SMRT, my fair target is S$1.18. That is based on the earnings
potential for this current year, as well as the price to book
valuation."
Analysts favour Comfort Delgro for its more diversified earnings
base -- it has its taxi business, owns 70 percent of bus operator
SBS Transit, and operates the Metroline in the UK, with businesses
in China and Vietnam.
Brokerage house Kim Eng is also keeping a "buy" on ComfortDelgro,
with a fair value of S$2.18.
It says its group dividend is also attractive at 5.3 percent.
Kim Eng believes the impact of fare hike is unlikely to be
significant to ComfortDelgro's group earnings in fiscal year 2005.
- CNA /ct