Weekly chart of SMRT shows the stock peaking at 2.01 week ending 12 Sep 08 with last year’s low of 1.42 week ending 31 Oct 08 a drop of 29%. The stock closed yesterday at 1.58 level, just below the 5 period eMA. 18 period eMA reading is 1.63 which coincides with the Fibonacci 38.2% retracement level from the high of 2.01 to the low of 1.02 and forms the resistance level. The Fibonacci 50% retracement level is 1.51 and forms the support for the stock. 14 period RSI reading is 44.7 holding below the resistance at 50. MACD is in the oversold region but is flat indicating a consolidation phase with the indicator just above the signal line. An ELN strike at 95% of spot 1.58 would give a strike of 1.50 (below the Fibonacci support at 1.51) and a potential yield of 8.58%

• Affordability and connectivity driving ridership. Jan 09 ridership for CD and SMRT continued to improve, clearly the result of the government’s numerous initiatives to improve connectivity for commuters combined with the current recessionary environment which is turning commuters more cost-conscious. Public transport remains the most affordable transport option for the general public.

• Extending the network. The Boon Lay Extension was recently opened on the East-West Line. With the opening, the East- West Line has been extended to 49.2km and 31 stations, further improving commuter convenience and connectivity. The Circle Line (CCL) Stage 3 will be opened on 30 May 09. CCL is an important part of the MRT network as it can connect commuters between the different suburbs without the need to go into busy city stations. The gradual opening of the CCL until 2011 will certainly enhance connectivity, and make public transport not just an affordable option but a more attractive one than driving. We believe that the phased opening of the CCL in the next 24 months could add euphoria to the sector.

• Impact of lower fuel prices more apparent in 2H09. Both CD and SMRT stand to benefit from lower fuel and electricity prices. Despite hedging 40-50% of their fuel requirements, the impact of lower forward prices for both should become more apparent in 2H09. Electricity tariffs are already on their way down. This should benefit SMRT as its upcoming 6-month electricity contract from 1 Apr 09 will be 25% cheaper than the preceding six months.

• Impact of fare reduction insignificant. Despite passing back tax savings and out-of-pocket rebates to commuters and taxi hirers, the eventual impact on revenue and earnings is insignificant, estimated at less than 1.8% for SMRT and 0.6% for CD. In addition, with ridership holding well, we believe that the cost of the rebates can be recovered through a higher number of passengers.

• Maintain Overweight. The main earnings drivers for transport operators would be lower energy prices and other costs, including staff costs. We maintain our positive position on the sector and earnings forecasts given the strong defensive nature of the business and that people would still need to move about in the most affordable way, supporting ridership. Maintain Outperform on CD (WACC 11%, DCF target price of S$1.84) and SMRT (WACC 8.5%, DCF target price of S$2.08).