SATS – Phillip

Record Tourism arrivals

Singapore Tourism Board (STB) announced a record high for visitor arrivals of 946,150 for the month of May. This double digit surge in visitor arrivals of 30.3% over the same period a year ago bodes well for the aviation sector. Moreover, there is a growing trend of preference for air transportation, by visitors traveling into Singapore, over the past one yr. We also observed a high percentage of visitor arrivals by air, of above 75%, for 4 out of 5 months of this year.

The previous peak monthly visitor arrivals of 971,452 experienced in December 2009 was achieved prior to the opening of Marina Bay Sands (MBS) and Resorts World Sentosa (RWS). With the opening of RWS and MBS in Feb and April 10 respectively, Singapore has entered into a new phase of growth as a tourism hub.

Traditionally, July and December were the strongest months for visitor arrivals. We believe that the previous peak levels would likely be breached in the corresponding months of 2010, along with the phased opening of the two integrated resorts.

Valuation:

We revised our revenue projections for SATS to include all these factors. Along with the proposed final dividend payout of 8cents in Aug 10 and our interim dividend expectations of another 6cents in Nov 10, total returns expected based on our 12monthly target price would be 29.3%. We believe that this margin of safety is sufficient for us to issue a BUY call on SATS. Furthermore, high yielding stocks, such as SATS, are particularly attractive under the low interest rate environment of today.

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