SATS – DBSV

24 July 2014
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Slow start

  • 1Q15 results slightly below estimates, dragged by higher costs and lower JV/associates contribution
  • Muted outlook due to overcapacity in the aviation sector and higher costs
  • Strong net cash position; 4.1% dividend yield to support share price
  • Maintain HOLD with TP adjusted slightly lower to S$2.90

Highlights

1Q15 earnings slightly below. 1Q15 earnings (S$43.3m, -6% yo-y) was slightly below our expectations, making up 22% of our full year forecast of S$196m. Flat revenue (S$435.2m, +0.2% y-o-y) along with increases in operating costs (+0.4%) and lower JVs/associate income (S$10.4m, -17%) led to the slower earnings Growth in gateway services revenue (+2% y-o-y), was dragged by lower food revenue (-0.9% y-o-y). Higher staff costs (+3%) resulted in a decline in operating margins (-0.3ppts, 9.1%), while lower regional cargo volumes led to a drop in JVs/associate income.

Strong net cash and free cash flow generation. Despite slower than expected earnings, SATS’ balance sheet and cash generating ability remained strong. Net cash increased to S$280m (from S$227m in 4Q14) while its operations generated S$31m in free cash flow which amounted to 72% of net income.

Our View

Lackluster outlook. We believe SATS’ growth outlook will be soft as the regional aviation market continues to see overcapacity. The rise in the number of LCCs will also undermine utilisation at its flight kitchens and growth in food solutions revenue. In addition, we see higher staff cost increases as dampeners to margin and earnings growth. We look forward to SATS growing its revenue streams away from aviation, into institutional catering (i.e. at Sports Hub) and maritime gateway services (i.e. at Marina Bay Cruise Centre).

Expect share price to be supported by dividend yield. Based on our FY15F DPS estimate of 13 Scts, SATS’ share price currently offers 4.1% dividend yield. Although earnings were slightly below our expectations, we do not believe this will undermine SATS’ DPS payout for this year. We therefore believe that SATS’ share price will be well supported by its dividend yield.

Recommendation

Maintain HOLD with lower S$2.90 TP. Following the slower than expected 1Q15 earnings, we trim our FY15F/FY16F earnings marginally by 1-2%. This resulted in a lower TP of S$2.90, based on average valuations using DCF (WACC 7.5%, t=1.5%) and PE (16x blended FY15F/FY16F EPS). Maintain HOLD.

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July 2014

24 July 2014
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Results Announcement

  • 15 Jul 14 : SPH (Q314) – EPS 6ct (todate 16ct)
  • 21 Jul 14 : M1 (1H14) – EPS 4.7ct (todate 9.4ct) ; Div 7ct vs 6.8ct (1H13)
  • 22 Jul 14 : SATS (Q115) – EPS 3.9ct vs 4.1ct (Q114)
  • 30 Jul 14 : SMRT
  • 31 Jul 14 : SGX
  • 12 Aug 14 : SBSTransit
  • 13 Aug 14 : ComfortDelgro
  • 13 Aug 14 : STEng

 

 

STI = 3353.89 (+13.19)

Stock

Period

EPS cts

DPS cts

Mkt

Yield

PE

Div Breakdown

Hong Leong Fin

FY13 (Dec)

15.85

12.00

$2.760

4.348%

17.41

Interim 4ct ; Final 8ct

SGX

FY13 (Jun)

31.43

28

$7.090

3.949%

22.56

Q1, Q2, Q3 4ct ; Q4 4ct +12ct

SingPost

FY14 (Mar)

6.746

6.25

$1.755

3.561%

26.02

Q1, Q2, Q3 1.25ct ; Q4 2.5ct

SPH

FY13 (Aug)

27

22.0

$4.160

5.288%

15.41

Interim 7ct ; Final 8ct + Special 7ct

Note : SGX Added from May-14 ; Q4 Variable Div Depends on FY EPS


Aviation Services

Stock

Period

EPS cts

DPS cts

Mkt

Yield

PE

Div Breakdown

SATS

FY14 (Mar)

16.10

13.0

$3.150

4.127%

19.57

Interim 5ct ; Final 8ct

SIA Engineering

FY14 (Mar)

23.88

25.0

$4.980

5.020%

20.85

Interim 7ct ; Final 13ct + Special 5ct

ST Engineering

FY13 (Dec)

18.73

15.0

$3.820

3.927%

20.40

Interim 3ct ; Final 4ct + Special 8ct


Note : SIAEC Special Div is Observed to be Non-Recurring (Depends on Excess Cash)



Transport

ComfortDelGro

Period

EPS cts

DPS cts

Mkt

Yield

PE

Div Breakdown

SBSTransit

FY13 (Dec)

3.62

1.80

$1.680

1.071%

46.41

Interim 0.9ct ; Final 0.9ct

ComfortDelGro

FY13 (Dec)

12.43

7.00

$2.600

2.692%

20.92

Interim 3ct ; Final 4ct

SMRT

FY14 (Mar)

4.10

2.20

$1.590

1.384%

38.78

Interim 1.0ct ; Final 1.2ct




TELCO

Stock

Period

EPS cts

DPS cts

Mkt

Yield

PE

Div Breakdown

SingTel

FY14 (Mar)

22.92

16.8

$4.000

4.200%

17.45

Interim 6.8ct ; Final 10ct

M1

FY13 (Dec)

17.4

21

$3.770

5.570%

21.67

Interim 6.8ct ; Final 7.1ct + Special 7.1ct

StarHub

FY13 (Dec)

21.50

20

$4.220

4.739%

19.63

Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct




Infrastructure

Stock

Period

DPS cts

Mkt

Yield

NAV

Div Breakdown

SPAus

2H – Mar14

A4.18 (Gross)

$1.570

6.224%

A$0.90

1H14 A4.18ct ; 2H14 A4.18ct

* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.1688) fm Yahoo

NOTES :

  • Mkt Price is as on 24-Jul-14
  • M1 : 1H14 (Jun) – Interim 7ct
  • SPAus : FY15 Guidance = A8.36ct Gross
  • SPAus : 2H14 (Mar14) – A4.18ct = A1.393ct (Franked) + A2.379ct (Interest – Subject to 10% Tax) + A0.408ct (Capital Returns) ; 1H14 (Sep13) – A4.18ct = A1.393ct (Franked) + A2.396ct (Interest – Subject to 10% Tax) + A0.391ct (Capital Returns)
  • SingTel : 2H14 (Mar14) – Interim 10ct ; 1H14 (Sep13) – Interim 6.8ct
  • StarHub : Q114 (Mar) – 5ct
  • SIAEC : Q414 (Mar14) – Final 13ct + Special 5ct ; Q214 (Sep13) – Interim 7ct
  • SMRT : Q414 (Mar14) – Interim 1.2ct ; Q214 (Sep13) – Interim 1ct
  • HLFin : 2H13 (Dec) – 8ct ; 1H13 (Jun) – 4ct
  • ST Engg : 2H13 (Dec) – 4ct (Final) + 8ct (Special) ; 1H13 (Jun) – 3ct ; Dividend Payout Reduced from 90% to 80% for FY13 & Will Be Further Reduced to 75% from FY14
  • ComfortDelgro : Q413 (Dec) –4ct ; Q213 (Jun) –3ct
  • SBSTransit : Q413 (Dec) – 0.9ct ; Q213 (Jun) – 0.9ct
  • StarHub : FY14 Div Guidance – 5ct/Q
  • SingPost : Q314 (Dec13) – 1.25ct ; Q214 (Sep13) – 1.25ct ; Q114 (Jun13) – 1.25ct
  • SATSvcs : 1H14 (Sep13) – Interim 5ct
  • SPH : 2H13 (Aug) – Final 8ct + Special 7ct ; 1H13 (Feb) – Interim 7ct
  • SingTel : Div Policy – 60% to 75% of Underlying Net Profit
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