SATS – DBS
Better results on the cards
• Air travel recovery faster than expected
• Project 20% yoy rise in 4Q earnings, ending FY10 at S$185.4m, above mean estimates
• Overall market growth more than offset potential entry of 3rd Ground Handler
• Reiterate Buy, TP raised to S$3.20
Project 20% growth yoy for 4Q10F. Most recent data from Changi Airport showed flights, passengers and cargo grew by 5.5%, 10.1% and 20% yoy respectively in Jan'10. We project SATS to show a 4Q10F net profit growth of 20% yoy, ending its full year at S$185.4m, above mean and our original estimates of S$178m. We are also expecting a final dividend of 8 Scents, bringing full year DPS to 13 Scents (76% payout). Going forward, we expect continued recovery in its aviation division, driven by a projected surge in CY2010 tourist arrivals (11.5m-12.5m: STB).
Market growth more than offset entry of 3rd player. The potential entry of a 3rd ground handler could happen soon, given that Changi Airport Group called for tender in Nov'09. In our view, the two likely candidates are Aero-Care and JetStar/AirAsia. We have factored in a 2ppt decline in its share of passengers handled from FY11F. However, SATS will benefit from market growth, which more than offset any potential erosion of market share, in our view.
Reiterate Buy, TP raised to S$3.20. We raised our FY10F forecast by 4% and FY11F/12F by c.2%, factoring in (i) higher pax/cargo handled; (ii) higher contribution from JVs; (iii) lower interest expenses, but offset partially by lower market share assumed. We adjust up our TP to S$3.20, from S$3.09. The counter is trading at 15.2x FY10F PE, but in view of its strong CAGR of 17%, this is projected to decline to 12.1x in FY12F. Valuations are still reasonable at prospective PE of 13.6x, P/B of 1.8x and a yield of c.5.4% (on FY11F earnings), which will support share price.