We are expecting SMRT to post stronger 1QFY10 results on a yoy basis, on maiden contributions from the Circle Line (CCL), as well as lower energy- and wage-related costs. For a more comprehensive operational update, please refer to our report “Still Worth Paying For” issued 8 July 09.

Maiden contribution from CCL. 1QFY10 will see the CCL contribute for the first time, as the first section of the line (CCL3) started operations in May 09. Ridership for CCL3 is at about 40,000/day at present. We expect ridership for the section to normalise at about 45,000/day, adding 14m to ridership in FY10.

Lower energy expenses. Electricity costs for usage spanning Apr-Sep 09 were contracted in Nov 08, when HSFO prices were significantly lower. We are expecting energy expenses to be 11% lower for the full year. Benefitting from the Jobs Credit Scheme. In spite of higher operational overheads related to the CCL on greater staff strength, we expect wagerelated expenses to be under control due to the Jobs Credit Scheme.

We have a BUY call on the stock with a DCF-derived target price of S$2.00 (cost of equity: 6.9%; terminal growth: 1%).