SMRT says the operating environment is expected to be difficult for the next 12 months. It thinks its taxi operations will remain challenging. Also, its bus operations are expected to sustain operating losses for FY2009 because of high diesel prices, and being affected would be affected by the government implementing the more stringent quality of service standards.

But for the next quarter, the transport operator says it expects higher revenue from its train and bus operations as compared to Q2 due mainly to ridership growth.

It also expects to complete the acquisition of a 49% stake in Shenzhen Zona Transportation Group Co. Ltd by Q4 2009.

It declared an interim dividend of 1.75 cents.

Q2 revenue rose 15% to S$227 mln as more people took SMRT trains and buses, it received higher rental and advertising revenue, and it sold more diesel to taxi hirers.

Net profit rose 8% to S$42.6 mln due mainly to higher operating profits partially offset by higher income tax expenses.

It generated S$20.7 mln in cash from operations compared to the S$22.1 mln the previous year.

Analysts surveyed by Reuters have on average an OUTPERFORM call on the stock with a price target of S$2.00, compared to its last traded price of S$1.54.

~ Jin San’s take ~
SMRT says it is expected to finish acquiring 49% of Shenzhen Zona Transportation Group Co. Ltd by Q4 2009. This could be an important event in SMRT’s history. SMRT says Shenzhen Zona is profitable and has high growth potential.

Like the other SGX-listed company, Midas Holdings, which is supplying the demand from China’s infrastructure sector, SMRT can hedge against its exposure to the Singapore transportation market by doing well in China.

After all, Singapore is too small and competitive.

As always, please see your licensed financial advisor before making any investment decisions.