SATS – Phillip

Revenue increased by 10.7% to S$401.2mn, while PATMI increased 10.5% to S$45.2mn.

Long term trend of strong aviation performance still intact as observed from proxy indicators.

Raw material cost for food business could increase pressure on margins.

Maintain Buy recommendation with target price of S$3.21.

2QFY11 Results Discussion. The result for this quarter is slightly lower than our expectations. We have observed stronger than estimated top line growth driven by increases in both the Food Solutions & Airport Services segment. Our margin estimates were slightly off and that resulted in an overestimate of S$3.4mn to the shareholder’s profit for the quarter. The operating statistics were also slightly below our expectations. Therefore, we revised our full year profit estimates slightly downwards from S$207.6mn to S$191.5mn.

Key Risk. Increase in raw food prices; consumer preference for LCC reduces scope of airport services; third ground handler at Changi Airport.

Valuation. We roll over the BVPS and EPS estimates and used the blended FY11/12 BVPS of $1.43 and EPS of 17.2¢ to get our revised target price of $3.21. Thus, we maintain our Buy call with forecasted total returns of 15.6% after incorporating dividends payout of 13¢ over the next 12 months.

SATS – Phillip

Revenue increased by 10.7% to S$401.2mn, while PATMI increased 10.5% to S$45.2mn.

Long term trend of strong aviation performance still intact as observed from proxy indicators.

Raw material cost for food business could increase pressure on margins.

Maintain Buy recommendation with target price of S$3.21.

2QFY11 Results Discussion. The result for this quarter is slightly lower than our expectations. We have observed stronger than estimated top line growth driven by increases in both the Food Solutions & Airport Services segment. Our margin estimates were slightly off and that resulted in an overestimate of S$3.4mn to the shareholder’s profit for the quarter. The operating statistics were also slightly below our expectations. Therefore, we revised our full year profit estimates slightly downwards from S$207.6mn to S$191.5mn.

Key Risk. Increase in raw food prices; consumer preference for LCC reduces scope of airport services; third ground handler at Changi Airport.

Valuation. We roll over the BVPS and EPS estimates and used the blended FY11/12 BVPS of $1.43 and EPS of 17.2¢ to get our revised target price of $3.21. Thus, we maintain our Buy call with forecasted total returns of 15.6% after incorporating dividends payout of 13¢ over the next 12 months.

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