SATS – Phillip
Special dividends likely
SATS Ltd is a provider of Airport Services & Food Solutions with a dominant presence in Singapore’s Changi Airport. The Group also has a network of JVs across Asia and holds a majority stake in TFK Corp, an inflight catering business based in Japan.
• Margin pressures & loss on disposal of Daniels Group contributed to 25% decline in net profits
• TFK Corp in the black for the quarter
• Factored in special dividends of 20cents for FY12E
• Maintain Buy with revised TP of S$2.76
What is the news?
SATS announced headline profit decline of 25% in 3QFY12 due to margin pressures and loss on disposal of Daniels Group of S$5.5mn. Revenue was little changed when compared to figures prior restatement in the quarter, which removed contributions from Daniels Group in 3QFY11. The lack of contribution from Daniels Group (3QFY11: S$107mn) was offset by contributions from TFK Corp (3QFY12: S$82mn) and organic growth from SATS’s core business. Underlying Net Profit from continuing operations disclosed by SATS declined by 8.6%y-y from S$47.8mn to S$43.7mn.
How do we view this?
The low profit margin for the quarter is partly a result of distortions due to low profit contributions from TFK Corp that was acquired in Dec 2010. Net profit for the quarter is in line with our forecasts. In the quarter, SATS received cash from the sale of Daniels Group, which led to a cash build up. Hence, we explicitly modeled in special DPS of 20cents, on top of ordinary final DPS of 6cents that could be announced at the end of the year. We maintain our view that holding surplus cash would hurt the efficiency of SATS’s balance sheet and management would likely dish out excess cash to shareholders.
We maintain our Buy recommendation on SATS with the view that earnings would likely improve meaningfully in FY13E and the likelihood of a special dividend payout will offer good share price support in the near term. Current market price translates to a forward yield of 13%.