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Analysts: Oil Fallout A Boon To Transport Stocks
Aspire, Hot Picks | 04 February 2015
By: Raymond Leung
Articles (142) Profile

Analysts updates on selected transport plays


The fall in oil prices have brought an advantage towards companies in the transportation industry. Companies will stand to make a huge saving in cost from the drastic difference of oil prices.

Transport operators like Singapore Airlines (SIA) will make approximately 30 percent more in earnings through this savings. Oil expenses account for 38 percent of SIA’s total operating cost.

Stock prices for counters in the transportation sector have moved up significantly since the fall of oil prices. Analysts from DBS Vickers Research felt that investors can accumulate on price weaknesses as long as oil does not exceed US$70 per barrel.

Sentiments from the street lean towards land transport operators with SMRT taking the helm. Forecasts for land transport operators were increased by 4 percent to 9 percent. This comes after factoring the lower oil prices, stronger US dollar and lower fare increases.

ComfortDelGro (CD) was also mentioned but was dropped. This is due to the fact that CD will benefit less compared to SMRT from the lower operating cost. SMRT is better poised to benefit from the slump in prices compared to CD.

After years of weak performance and relegation from the STI, SMRT rose back to prominence and became a gem in the eyes of analysts. Given that SMRT is expected to benefit more from the slump in oil prices, the counter’s earnings should see a strong recovery.

Earnings for SMRT in 3Q15 and 9M15 were 27 percent and 83 percent higher than consensus estimates previously. Subsequently, the earnings per share forecast of FY15 were raised by 10 percent to 17 percent to incorporate lower energy costs, taxi margins and improving ridership figures.

DBS Vickers has a BUY call on both SIA and SMRT with upside potentials of 6.52 percent (TP: $12.90) and 7.34 percent (TP: $1.90) respectively.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.


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