SATS – DBSV
Tough year, but nice ending
At a Glance
• FY10 results largely within consensus’ and our expectations
• Aviation volumes recovering, expected to continue
• Final DPS of 8 Scents (FY09: 6 Scents) as expected
• Maintain Buy, TP: S$3.13
Comment on Results
FY10 net profit within expectations. FY10 net profit grew by 23% to S$181.2m on the back of S$1.54bn topline (+44.9% yoy). The revenue growth was due to full year consolidation of Singapore Food Industries (SFI) (S$634.4m). EBIT margins fell to 12%, from 16.1%, largely due to lower margin business of SFI. SFI contributed S$54.2m PAT, and generated free cash flow of S$62m. Based on SATS’ acquisition cost of S$487m, the ROI works out to c.11% (before amortization of intangibles). Net profit was also lifted by 89% increase in associates’ contribution to S$41.9m, mainly from its Indonesia and Hong Kong ground-handling associates.
Aviation volumes recovering well. Recovery in aviation volumes remains on track with all operating statistics (pax/flights/cargo handled, meals produced) showing positive growths. Most notable was unit meals produced, which grew 6% yoy in 4Q10, first positive number since 3Q09. While Apr’10 is likely to be marginally impacted by disruptions in flights due to volcanic ash in Europe and political unrest in Thailand affecting travel, management remains optimistic that recovery will continue.
Final DPS of 8 Scents; strong balance sheet. Net cash increased to S$173m, up from S$26m in FY09, largely due to strong free operating cashflow of S$190m in FY10. Coupled with its existing S$500m MTN, the group is financially ready for investments. Final proposed DPS of 8 Scents is expected (FY09: 6 Scents), bringing full year DPS to 13 Scents or equating to 78% payout.
Maintain Buy, TP: S$3.13. We maintain Buy call as the group continues to leverage on aviation recovery and grow its food solutions business. Our PE and DCF derived TP is revised down slightly to S$3.13 due to adjustment for a larger share base from share options conversion and slight adjustment on our FY11/12F EPS.