SMRT (DMG)

SMRT’s subsidiary, BYD sign electric vehicle MOU (BT)

The news: SMRT’s wholly owned subsidiary, SMRT International Pte Ltd (SMRTI), will enter into discussions with China-based BYD regarding the possibility of establishing a joint venture to develop, distribute, and sell electric vehicles, including e-buses and electric taxi vehicles. It is mentioned that the move is part of SMRT’s commitment to environmental sustainability. In order to further promote better air quality, SMRT is also constantly exploring the use of electric vehicles in its bus and taxi fleet.

Our thoughts: We see SMRT’s latest tie-up with BYD as signs that SMRT is willing to explore the use of electric vehicles in the future should they be economical. The latest move reinforces SMRT’s credential as one of the leading land transportation companies in Asia to actively promote use of green vehicles. Although we like SMRT’s long term commitment to green vehicles, its current valuation remains steep at 18x FY12 PATMI compared to its mean forward P/E of 14-15x since Oct 2003. Maintain NEUTRAL on the counter with TP of S$1.94. Within the land transport space, we prefer ComfortDelGro (BUY/TP S$1.80) which is trading at a cheaper valuation of 14x FY11 PATMI.