SATS – DMG

Serving yet another strong quarter

SATS registered 2Q11 PATMI of S$45.2m (+10.5% YoY, +2.0% QoQ) on the back of S$401.2m in revenue (+10.7% YoY, +5.0% QoQ). This is in line with our expectations. Excluding the effect of jobs credit of S$6.3m in 2QFY10, PATMI would have risen by 30.6% YoY. 1HFY11 PATMI amounts to S$89.5m while 1HFY10 revenue amounts to S$783.3m, making up 46.8% and 47.0% of our full year forecasts. An interim dividend of 5 S¢ was declared and is payable on 2 Dec. Management remains optimistic on its outlook with particular emphasis on the coming 3Q which is seasonally its strongest. Key challenge going forward would be the rising prices of food. Our DCF-derived fair value of S$3.25 implies an FY11F P/E of 18.7x. Based on last closing, there is a 12.5% upside. Maintain BUY.

2QFY11 revenue grew 10.7% YoY to S$401.2m. Revenue growth was achieved on the back of increased flights handled as well as higher cargo and meal volumes. Non aviation revenue grew 14% to S$164.1m as a result of higher catering revenue stemming from the one-off provision of meals for the Youth Olympic Games (YOG) and higher contribution from its UK operations, particularly in the fruit and chilled ready meals categories. Contributions from its overseas associates rose 51% YoY to S$15.9m boosted by higher volumes in overseas ground handling joint ventures.

Outlook. Management was positive on its coming 3Q which has traditionally been its strongest quarter, due to the holiday and festive season. Revenue from its UK operations are also expected to be stronger in the second half due to seasonality. A key concern that was raised during the analyst briefing was the rising cost of food prices which is expected to remain a challenge going forward.

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