4Q09 benefited from the 1%-pt reduction in corporate tax rate to 17% announced in the 2009 budget measures. Reported net profit rose 13% from 4Q08 to $38.7m (-6% qoq). Adjusted for the tax effect in both periods however, net profit was $31.8m (+0.5% yoy, -22% qoq). For the full year, adjusted net profit of $154.1m was slightly below our forecast of $157.7m which have not factored in the tax savings.

A final DPS 6 cents was declared, unchanged from FY08. As a result, full year DPS of 7.75 cents were slightly below our forecast of 8.1 cents. Nevertheless, payout of 72% is still above its dividend payout policy minimum of 60% of earnings.

Rental revenue grew faster than guidance of a $10m rise. Tenants are relatively unaffected by the recession as train stations are high traffic locations. The loss-making bus business turned around on lower fuel prices in 4Q09, while Palm Jumeirah boosted engineering profits. But trains profits fell, the first decline in years, while taxi losses were aggravated by the disposal of unhired vehicles at a loss.

We forecast a 8% earnings decline in FY10 as the headwind builds. Loss of revenue from fare cuts and higher rebates will exceed Budget-derived savings, Circle Line Stage will not break even until FY11 when more stages are opened and only a marginal rise in rental income is expected. However, SMRT will see higher O&M revenue as Palm Jumeirah becomes operational and taxi losses should reduce. Management is also still pursuing the possibility of overseas M&A.

Present valuations and yield do not justify a more positive call on SMRT. At the same time, its relative stable business should ensure earnings remain resilient and limit downside. While overseas M&A could liven up earnings growth, none has materialised thus far. For exposure to land transport, our preference is still for ComfortDelgro.