SMRT

This post is kind of like a follow up on the post called monopoly. I've been mentioning about monopoly, the least I could do is to give an evalutation on SMRT.

Before I get to my evalutation, a little thing to add. People who get monoploy companies tend to not really care about their monopoly status, they tend to do so because they are lured in by their defensive status and their reputation for good dividends. You can say its a blessing in disguise.

Moving on to my evaluation

My evaluation of SMRT is based on the 2009 annual report and the stock price as of 18/12/2009.

A little introduction to SMRT's business. SMRT is the company responsible for singapore's train system, which we call mass rapid transit. While many people like to talk about how they are crammed into trains, let me assure you that is not really the case and these are just whiney overly pampered people who don't like others getting into their comfort zone (Okay, I should stop ranting). Besides doing train services, SMRT deals with LRTS, buses, taxis, rental of commercial space, advertising and enginerring. Evidently SMRT deals with a large portion of singapore's transport network.

Lets evaluate the history of SMRT for the last five years.

Revenue ($mil)
2005 2006 2007 2008 2009
673.5 711.7 743.1 802.1 879.0

Do I need to say anything more? Revenue is rising consistently for 5 years. I guess we can conclude the company is growing.

EPS(cents)
2005 2006 2007 2008 2009
8.4 6.9 9.0 9.9 10.7

Well, there was an adnormality in 2006, well, I'm too tried to find out why, so why don't you and comment below...thats your homework...hehe...other than that EPS has always been rising. Investing isn't hard science so don't stick stubbornly to methods. This is considered fine to me.

It is interesting to note that inventories increase by 1 million from 30,917,000 to 31,872,000. Well, I think its fair to attribute that to the economic crisis. Yeah, blame everything on the crisis.
Rather interesting to note that receivables dropped from 71,548,000 to 60,717,000. Since business is less, does it mean lesser money to collect? but revenue increased. Maybe they were growing during this crisis explaining the rising inventory and revenue and better able to collect payments explaining the falling receivables.

Profitability
Profitability ratios should be used to as a comparison better companies within the same industry or the industry as a benchmark.
The profit margin of this business is 18.5% and return on asset and return on equity is 10.8% and 22.4%. Comparing it to SBS's profit margin of 6.45%, well i guess its a fair statement to say that SMRT provides a significantly better profit margin. The return on asset's of SBS is 9.1%. making SMRT seem like the better deal in comparison.

Liquidity
I found that SMRT's current ratio is 0.9424. Current ratio compares the company current assets against it's current liabilities. It is interesting to note that SMRT's current assets is more than its current liabilities. What are the implications?

Debt
Debt ratio : 0.518
Debt to equity ratio : 1.075
Erm...low debt? seems so...

PE and PB
If you are a value investor you're likely to flip when seeing this.
PE: 17.6
PB: 3.97

STI's PE is about there, so their isn't too much of an issue. The PB though, scream shingZZzzzZZz, but its a monopoly so its kind of expected.

Future
Many people are looking forward to the completion of SMRT's next big project. **drum roll**
Yes, ladies and gentlemen. The Circle Line.

My opinion.
Well, note that the price doesn't fluctuate much and the company consistently pay dividends and the value is rising.

If you are young and want to make money from the stock market via capital gains, stay away from this stock. From the recovery from March 9, 2009 to now, we see the rise of less than 50%. Its rather stable with little fluctuations. Then again hindsight is 20-20. Yet interesting to note that with a profit margin of 18.4% this implies a certain degree of growth element in it.

If you are middle aged and above, you are likely in need of protecting your capital and get some dividends to spend. This might be a good choice for you. But further consideration and research is needed before entering your trade.

Eventually it depends on your strategy and the role you want SMRT to play in your portfolio.