SMRT - Disappointing Result - July 2013

SMRT Net profit dropped to $ 16.3 M (-55% y/y, net loss q/q) despite revenue inching up to $ 284.8 M. The mildly higher top-line was due mainly to higher train (+25%), rental (+9%) and taxi revenue (+6%), however operating profits tumbled 49% with operating margins slumping 8.8% to 7.8%, as continued increase in operating expenses for the fare business was not being offset by fare increases, resulting in  lower train profits and higher bus and LRT losses.

Operating expenses rose to $272.1 M mainly due to higher staff costs (+ 23%) and depreciation (+12%). Repairs and maintenance costs rose 4% with more scheduled repairs and maintenance. I believe this is a good sign for SMRT to continue to strive to maintain its service as one of the best train service providers in the world.

In my humble opinion, I think that SMRT could take a longer time to restore confidence from investors as well as its clients on the train services provided. With the "Free Ride" campaign kicked in this year, I believe the hidden cost such as reputation risk could be minimized offset by a little drop in revenue.