Stockwatch- SBS Transit (Singapore) Goldman Sachs raised target price to $3.21
Today SBS closed at $2.75......Goldman Sachs report:
Results above expectations; reiterate Conviction Buy
What's changed
SBS Transit (SBST) reported 4Q06 and full year 2006 net profit of S$16mil (+8% qoq and +14% yoy) and S$56mil (+9% yoy) respectively, which came in about 9% ahead of our estimates on a full year basis. The stronger than expected performance was mainly due to higher bus and NEL ridership volumes, and advertising revenue. SBST had also proposed a gross final and special dividend of S$0.065 and S$0.17 respectively; SBST will trade ex-dividend on 11 May 07 and the final and special dividends will be payable on 28 May 07.
Implications
In response to the better than expected results, we have revised our 2007E and 2008E earnings estimates by +8% and +10% respectively. We have raised our share price target by 3% to S$3.21 due to (1) higher free cash flow estimate arising from ridership adjustments; and (2) a lower cost of equity assumption of 8.5% (from 9%) for our DCF-based valuation. Note that we have not taken into account the proposed 2% GST hike, increase in CPF employer contribution and reduction in corporate income tax rate; details of these proposals are expected to be unveiled in the 2007 Singapore Budget.
Valuation
We have raised our 12-month share price target marginally to S$3.21 (vs previous S$3.13), implying 18% potential upside. Our DCF-based share price target is derived by adding the present value of SBST’s potential upcoming dividend streams (S$0.49) to our estimated value of its core bus and train operations (S$2.72). Maintain stock on Conviction Buy list.
Key risks
The key risk to our positive view is that management does not fully utilize SBST’s available balance of Section 44 tax credits for distribution of dividends.
posted by gsg @ 10:05 PM
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