SMRT continues to deliver steady earnings growth and a respectable yield of5.3%. We expect FY10E earnings growth of 10.4% YoY supported by resilientridership growth and cost savings from lower oil prices. We have raised ourearnings by 9.4% in FY10E to account for our lower oil price assumptions. Weraise our TP from S$1.95 to S$2.00 and reiterate our Buy recommendation.

ridership growth and 4) rental income stability due to long leases. SMRT has alsosecured a contract to operate the palm monorail in Dubai. This contract is basedon a cost plus model and could boost SMRT’s revenue by S$20m pa. Our costassumptions are conservative and should provide further upside to our earnings.

Public transportation ridership could see stronger growth, underpinned by thereduction in transport fares and an increasing trend of moving towards publictransport. We cut our assumptions for fares by 5% in anticipation of the potentialfare reduction by the PTC at the end of Feb09. We expect the 5% potential rebatein fares to be more than offset by the increase in ridership for rail and bus.

We raise our target price from S$1.95 to S$2.00 on our earnings upgrade and achange in our valuation from ROE/PB to DCF. We have used a COE of 7.5% basedon a risk-free rate of 2.6%, ERP of 4.8% and a beta of 1.0 with a TGR of 1%.Downside risks include: a strong rebound in the oil price, decline in ridership,sharp reduction in fares, intense taxi competition and disease outbreak.