Excerpts from analysts' report

Credit Suisse analysts:
 Louis Chua, CFA & Christopher Siow

400taxisNextInsight file photoSMRT announced the transition to the New Rail Financing Framework (NRFF) for its rail lines from 1 Oct 2016.

● We highlight the government is still in discussion with SBS Transit (CD subsidiary) on possibly transiting its Northeast Line (NEL) and Sengkang-Punggol LRT (SPLRT) to the NRFF, and this has to be "on terms mutually acceptable to both the government and SBS Transit".

CD's Downtown Line (DTL) is already under the NRFF.

Share price:

● While not directly comparable, given the unfavourable EBIT margin of 5% for SMRT's rail lines, we have conservatively assumed the NEL and SPLRT will transition to the NRFF from FY17E, with a 5% target margin across CD's rail lines.

Potential upside in FY16
"Unlike SMRT which is in a net debt position, CD's net cash position will be supportive of a payout of such excess cash to shareholders. This has not been accounted for in our dividend assumptions for CD, and would represent a potential upside optionality for shareholders in FY16E. Maintain OUTPERFORM.."

-- Louis Chua, CFA, &
Christopher Siow 

This results in only a 3-5% decline to our FY17-18E EPS and 4.6% reduction to our DCFbased TP, highlighting the resilience of CD's portfolio. 

● We continue to like CD for its diversified portfolio and proven track record of delivering sustainable growth, with a 7% EPS CAGR up to FY18E.

The 60% upfront payment for rail assets to SMRT also raises the possibility of a special dividend to CD shareholders, from the sale of bus assets in our view.


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