SMRT Corporation reported 1QFY10 net profit of S$48.2m (+19.6% yoy, +24.7% qoq) on total turnover of S$229.0m (+3.3% yoy, +1.7% qoq), representing 29.2% of our full-year estimate. The stronger results came as little surprise to us but we expect energy-related expenses to rise in the coming quarters (SMRT has not finalised its electricity contract for its next consumption period from Oct 09 to Mar 10, or 3Q and 4QFY10). Other Operating Income also included revenue recognition from a one-off project.
Zona deal expected to be concluded within the year. Management indicated that the acquisition of 49% of Shenzhen Zona is expected to be concluded within the next few months, pending approval from the Chinese authorities. Contribution from Zona is expected to start immediately but will be insignificant in the next three to five years. Nonetheless, it is a valuable beachhead for the company’s foray into China.

Circle Line. Ridership for CCL3 continued to stay in the 30,000+ region per day, lower than our expectation. Management reiterated that although operating loss for the new line is anticipated due to essential operating overheads, they are not expected to be material.

No material changes. We fine-tune our profit estimates for FY10-12 by +0.1- 2.9%, factoring in lower ridership from CCL3, a higher net lettable area for the rental segment and lower energy expenses.

Maintain BUY; target price S$2.00. We continue to like SMRT for its disposition to leverage on the Singapore growth story, especially as a beneficiary of foreign population growth. We also view its overseas ventures positively as we believe it to be an essential component in the company’s next leg of growth.