FINANCIAL ANALYSIS

SMRT Corporation Ltd

SMRT Corporation Ltd

Introduction

SMRT the public transport industry in Singapore is a duopoly industry, with SBS Transit being the only competitor in SMRT's core operations, which is MRT and buses. Even so, SMRT's operations are more focused on the MRT segment (53.96% of total revenue) while the major operating segment of SBS is in the bus industry (79.77% of total turnover). Therefore, there is very little competition between SMRT and SBS.

Company Background

SMRT Corporation Ltd ("SMRT") is incorporated on 6 March 2000 and listed on the Singapore Exchange since 26 July 2000. After the China, Singapore is the second largest multi-modal public transport service provider, offering a range of integrated transport services. SMRT operates two out of the three MRT lines in Singapore (81.7% of the whole network) as well as the Bukit Panging LRT system (27.1% of the rail length). The company's bus and taxi operations form a marginal part of the transport systems at an estimate of 26.5% and 12.3% respectively, based on fleet size (GIBSON & FRISHKOFF 1986, Pp. 56-58).

Qualitative Analysis of Company

Nature of Services Provided

Transport services provided by SMRT are highly diversified with its buses, taxis, and MRT and LRT trains covering every mode of public transport. The other business segments are rental, advertising and the provision of engineering and other services, etc. The company also expanded their services by launching 9 premium bus services that offer commuters a faster and more direct ride to their destination.

Quality of Management

The management of SMRT is farsighted as it diversifies its overseas operations in order to expand beyond the small domestic market. Meanwhile, it keeps its local business competitive, by providing better services through the upgrading of its MRT, buses and taxis.

Earnings Quality

• Timing of revenue and expenditure

Recognition of revenue is when services are rendered fully to commuters - at the end of the trips or upon the completion of short-term workshop and other services. For work and project contracts, the percentage of completion method is being employed.

QUANTITATIVE ANALYSIS OF COMPANY

Liquidity Ratios

Liquidity ratios depict the company's availability of cash to pay short term liabilities. Current ratio declined from 1.59 to 0.94. The quick ratio also dropped from 1.36 to 0.85 over the years.

A main reason for the decline in current and quick ratios is that the payment for S$50 million 5-year unsecured floating rate notes and S$100 million 3- year float unsecured fixed rate notes are due in 2010 and 2009 respectively. This increases the current liabilities of SMRT and raised the base of the liquidity ratios, causing the ratios to decline. This may make SMRT appears to be less liquid. However, it may not be a weakness if SMRT has the ability to repay the loan (PENMAN 2001 Pp. 202-210).

Cash ratio has deteriorated from 0.96 to 0.59%. This is despite the increase in cash & cash equivalents (cash at banks and in hand + fixed deposits) by $75.97 million from 12.3% of the total assets in FY09 to ...