SATS – DBSV

Special dividends in the works

SATS sells Daniels Group for £151m

Special dividends now a potential stock catalyst

Expect better dividend payout but lower earnings estimates with loss of Daniels

Upgrade to Hold TP raised to S$2.57

Daniels Group sold for £151m. SATS has sold UK food arm Daniels Group to The Hain Celestial Group Inc. for £151m, a unit it bought for approximately S$250m 2 years ago.

Potential of special dividends from Daniel’s sales proceeds. We understand from SATS that it does not require additional funding if it wins the rights to operate the new Singapore International Cruise Terminal at Marina South. Yet we believe that it is looking at various acquisition targets to expand its operations. Proceeds from Daniels work out to 27 cts per share. Assuming SATS pays half of the proceeds in special dividends (13cts per share) on top of its normal DPS of 13cts, total dividend yield could work out to 11%.

Cut earnings forecast by 2% (FY12) and 9% (FY13) on loss of contributions from Daniels. We expect disposal of Daniels to lower our revenue forecast for FY12F/FY13F by 9%/13% and profit forecast by 2%/9%. However, we expect earnings quality to improve going forward as Daniels generally yield lower margins than its core businesses.

Upgrade to Hold, TP raised to S$2.57, special dividends is a potential stock catalyst. Although loss of Daniels will impact earnings negatively, we expect other core operations to grow. With the sale of Daniels, we upgrade our core TP for SATS from S$2.20 to S$2.57 (Blended based on PE/DCF) and raise our call to HOLD.

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