SATS – Phillip

A strong finish to the year!

Company Overview

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.

Stronger than expected end to the year

B/S still below optimal capital structure, paving the way for higher dividend distributions in the future

Final & Special DPS of 21.0cents

Maintain Buy with revised TP of S$2.80

What is the news?

SATS announced a 10.7% decline in net income for the year, mainly due to the lack of contributions from Daniels Group that was divested in the year. After adjusting for the effects of one off items, underlying profits from continuing operations declined by 4.3%. EBITDA margin declined by 2.3ppt as a result of slight margin compression at its core business in Singapore and lower profitability at TFK Corp. SATS announced special dividend of 15.0cents and final dividend of 6.0cents, taking full year payout to 26.0cents per share.

How do we view this?

SATS’s result for FY12 was stronger than our expectations, mainly due to lower than expected staff cost incurred in 4QFY12. Even after accounting for the special dividend payout, SATS is still expected to have a healthy balance sheet with a net cash position. The company’s capital structure would also be significantly below management’s long term net gearing target of 30%. Hence, we believe that SATS have the capacity to pay and would likely increase its long term dividend payouts, in the absence of suitable M&A opportunities.

Investment Actions?

We maintain our Buy recommendation on SATS and revised our target price to S$2.80 as we roll forward our valuation basis and account for the special dividend payout. At the current price, SATS offers a yield of >10% over the next 12 months.

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