SMRT Holdings surges more than 10% in morning trade


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KUALA LUMPUR (Oct 31): SMRT Holdings Bhd has jumped more than 10% to a new record high of 92 sen in the morning trade.
At 11:24 am, it has pared some gains to settle at 91sen with some 12.66 million shares changing hands. It hit the previous record high of 91 sen on Aug 15 this year.
In a non-rating research note yesterday, CIMB Research Terence Wong said that it believed SMRT is" the cheapest education stock" on Bursa Malaysia based on its low price-earnings ratio.
“SMRT is trading at only nine to 11 times for the financial year ending Dec 31, 2016 (FY16) price-earnings ratio. Assuming SMRT’s FY16 net profit to be around RM21 million to RM27.5 million and pegging the value of the stock at 16 times FY16 P/E, it could trade up to RM1.04-1.38, giving investors 40% to 86% upside,” said Wong.
Wong said that with 80% recurring revenue and a projected 35% to 50% three-year earnings per share compound annual growth rate (CAGR), in turn supported by its medical university and English language teacher training contracts, this under-researched gem is poised for a re-rating.
Potential re-rating catalysts are its transfer from the ACE market to the main board, said Wong, adding that SMRT is in the running for the RM90 million contract that will be awarded in 2015.
Given an asset-light business model, SMRT's return on equity (ROE) should rise from 16% in FY13 to 25% in FY15-16 and its balance sheet should turn net cash by end-2015, he said.

Despite the positive outlook, CIMB Research did not assign a rating on the stock.