FY09 results in line with expectations. SMRT announced its 4QFY09 results last Friday, with revenue growing 4.1% YoY (-1% QoQ) to S$216.9m and net profit rising 13.0% YoY (-6.2% QoQ) to S$38.7m. This brings the total FY09 revenue to S$879.0m (+9.6%) and net income to S$162.7m (+8.5%). The strong top line performance came mainly from increased train and bus ridership, growth in rental and advertising revenue, increased consultancy revenue and higher project management fees. Despite experiencing higher operating expenses from increased staff and related costs, energy costs and loss on disposal of taxis, the group managed to post higher profit due partly to Singapore Budget measures. In 4QFY09, particularly, SMRT enjoyed ~S$7.4m of deferred tax write-back as a result of 1% corporate tax reduction. As such, while FY09 revenue was in line with our sales projection, net income was 4.7% ahead of our expectations. Excluding the tax benefit, we note, profit before tax of S$185.8m was spot on with our forecasts. SMRT ended the year by declaring a final cash dividend of 6 cents/share, bringing the total FY09 dividend to 7.75 cents, or a yield of 5.1%.

Mixed 1QFY10 outlook. For the upcoming quarter, SMRT is expecting revenue from train and bus operations to be lower YoY due to the 4.6% fare reduction package (effective from 1 April 2009) as announced by Public Transport Council in Feb 2009. Operating expenses are also likely to trend higher YoY due to higher repair and maintenance costs, and increased headcount with the commencement of Circle Line Stage 3 in May 2009. In addition, revenue from Advertising is anticipated to be lower, while the outlook for taxi is expected to remain challenging (although management expects average hired-out rate and its financial performance to improve in FY10). However, revenue from rental is projected to be higher YoY due to increased lettable space and better yield.

Maintain BUY. As the results and outlook were largely in line with our expectations, we have left our FY10F revenue unchanged. However, to reflect a lower tax rate and slightly lower-than-expected dividend payout, we have made minor changes to our income tax and dividend assumptions. This in turn eases our DDM-derived fair value to S$1.81 (S$1.83 previously). Despite this, we continue to like SMRT for its defensive nature, consistently strong dividend payouts and strong operating cash flows. Seeing that the share price has eased somewhat in recent weeks, we believe the stock has an even more attractive entry point now. Maintain BUY.