SMRT reported 3QFY09 net profit of S$41.2m, up 7.6% YoY, in line with expectations.

MRT is key contributor to operating profit. MRT revenue rose 9.1% YoY to S$119.7m, and accounted for a 55% revenue share. MRT average daily ridership was up 8.4% YoY to 1.41m rides. However, electricity costs surged67.9% YoY to S$18.8m, due to the higher rates from the six-month electricity contract effective 1 Oct 08. This led to a mild 6.3% YoY increase in MRT operating profit, though this still accounted for a sizeable 69.6% share of total operating profit.

Bus operations was lacklustre. Bus average daily ridership grew 4.4% YoY to 770k rides, which helped drive bus revenue expansion. Diesel costs of S$11.4m is marginally higher than the S$11.2m in 3QFY08. Bus operations recorded an operating loss of S$1.2m, versus the S$15k gain in 3QFY08.

YoY to 26,674 sqm. Though this accounts for only 6.6% revenue share, its share of operating profit is a sharply higher 21.4%. SMRT indicated that its commercial space rental is on a three-year basis and most of the rentals were effective in 2008 – suggesting not much rental reversions going ahead the next two years.

We are forecasting FY09 dividends of 9S¢, based on a 85% payout ratio (versus 78% in FY08). Though this gives a relatively attractive dividend yield of 5.7%, we see earnings (and dividend) downside risk if SMRT were to lower its bus and rail fares –SMRT has indicated that it will pass the Budget savings to commuters via lower fares. We maintain our S$1.65 price target – obtained from DCF modeling. Maintain NEUTRAL call on SMRT.