Monday, April 8, 2013

Why are people interested in SMRT stock?

SMRT Corporation (S53.SI) used to be a darling among dividend investors due to its resilient earnings, defensive nature and stable dividend payouts. Its last highest trading price was on 5 July 2010 when it hits a high of S$2.31. Since then, it went on a spiral downwards rollercoaster ride to a low of today's closing price at S$1.515.
 
 
I've known many retail investors who are interested in this stock. Their main common reasons interestingly are:

1.) SMRT is on a 52-week low. I'm going to pick them up at S$1.60. If it goes down to S$1.50, I'll average down and if it goes to S$1.40, I'll average down again.

2.) The market looks expensive at the moment. The only stock that looks "cheap" to me is SMRT.

3.) SMRT is one company in Singapore which will not go bust anytime. Everyone needs them.


Based on the common reasoning among retail investors, it seems like many are bottom-picking the stock and regards the 52 week high and low as SMRT's valuation.

What do I think of SMRT?

SMRT is currently trading at a PE of 21.48 (more than 1 SD above mean), which is a smug higher than its peers ComfortDelgro at 16.23. The management has recently issued a guidance that it will report its first Q4/FY13 results at a loss, citing higher operational costs and goodwill impairment as its main reasoning. Note that they have not even accounted for higher salary increment, bonus payout and higher CAPEX. Assuming a higher payout ratio of 80% than its usual payout, investors would most likely receive half of last year dividends of 3.5 cents/share, which amounts to ~3% yield. To me, that doesn't sound appealing, not in terms of the dividends nor in terms of valuation.
 
SMRT at its 2010 high of S$2.31 has a PE of 21.5. At today's closing price of S$1.515, it has a PE of 21.48. I hope investors who are buying into SMRT realise that they are not buying the stock at a cheaper valuation than what it was in 2010. The plunge in the stock price is caused by the drop in its earnings and NOT because the price is now some 80 cents lower.
 
I have no idea what is the bottom for SMRT. RSI is currently at an oversold position below 30. So we might get a rebound above the trendline at S$1.53, unless of course Mr. Kim or Mr. SARS decide to take action otherwise.



Are you one of those who are interested in SMRT stocks??

You're most welcome to share your opinions...

9 comments:

  1. Not sure what's so appealing about SMRT in the first place. All those things you mentioned, and fuel costs all add up to a big headache.

    Of course, if people still love it because so many cannot do without it, then nothing more I can say. But they can continue to live in cloud-cuckoo-land.

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    Replies
    1. MusicWhiz

      Capex is always going to be high for nature of SMRT business. Oil is always going to be higher. Salary and bonus are always going to be pegged to the inflation rate. Increasing the fare is a sensitive issue which simply has to be done very very carefully.

      If one has not touched this stock yet, it is best to leave them untouched :)

      Delete
  2. SMRT had a fairly good run from 2007-2010 and even weathered the 2008 market crash quite well, $1.51 was the price back then.

    In 2007 the population was 4.5m, profit was raining in.
    With a 6m target, are we not looking at the next peak in this lucrative business?

    The deficit could be party due to the one off track maintainence cost.
    Not forgetting, SMRT have 34,000 sqm of commercial space for collecting rental.
    Besides that, SMRT have operations and are expanding outside Singapore which looks promising.
    If anything, at this stage we could very well be near the tip of the V waiting for the rebound!

    This looks to be a rock solid foundation stock pick for now as compared to the other overpriced and overhyped stock.

    ReplyDelete
    Replies
    1. Hi Anonymous

      Thanks for sharing your opinion.

      I agree that the commercial side for SMRT business looks promising and it looks like it is going to play a bigger role in the future to support its core business, which is obviously suffering in its profit margin.

      Whether SMRT is near the tip of the V we'll never know. I know of a few who picks up SMRT when they were 1.9, 1.8, 1.7 and they are still averaging down. There will be a time when SMRT could become attractive at some point, but not definitely now in my opinion.

      Delete
  3. hi, im working in SMRT right now and i would say to you guys to bail. Mgt is bad, workers are bad, maintenance cost not coming down anytime soon, more pay revision expected, 6.9mil popn may not be achievable, more competitors expected in the rail sector, fuel cost, high turnover rate and even the circle line is having problems with some system obsolete already.

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    Replies
    1. Hi Anonymous

      I am not surprised how an employee of a company itself went to grudge about the poor performance of the company as he who works there knows best.

      The company I am working at has also poor profits and weak balance sheet and at times I can't undertand how the company is responsible for its shareholders.

      I was just wondering whether you are doing the reporting for SMRT which is why you are so familiar with its in and outs?



      Delete
  4. Would it be a good idea to hold on to this stock for long term say 20 years? It would have risen up by then considering tbis company has like you said, "fundamentals". Ie not a company to ever bust.

    ReplyDelete
    Replies
    1. Hi Anonymous

      Think about it this way.

      Do you want to invest to multiply your capital/returns or do you want to invest in a company that you ensure it will never close down. If so, there are probably a couple of stocks out there in a similar mould - ComfortDelgro, SGX, Singtel. Why SMRT?

      I'm not saying it will not turnaround in a couple of years, but justify your reasons for buying and not because it is a company that will never going to get bust. :)

      Delete
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