SATS – DMG

Stable aviation business

With the disposal of its UK business in 3QFY12, SATS recorded a marginal decline in 4QFY12 PATMI (1.2% YoY) to S$50.1m. Excluding the UK business, SATS managed to achieve a 10.0% YoY growth in 4QFY12 EBIT, even as revenue rose 7.8% YoY. Its Food Solutions business (particularly the aviation-related segment) would benefit from the improving tourism and air travel in the region, helped by a still-healthy regional economy. This could be somewhat offset by expected weakness in the cargo segment, mainly due to the ongoing economic slowdown in Europe and the US. SATS had announced a special dividend of 15 S¢/share for 4QFY12. Including the interim and final dividends (5 S¢ and 6 S¢ respectively), total dividends for the year would amount to 26 S¢/share. As we roll-forward our earnings estimates, our DCF-based TP is revised to S$2.57. Maintain NEUTRAL.

Expect stability to continue, with some growth. Revenue from SATS’ aviation business (excluding TFK) was rather stable over the past few quarters, registering flat QoQ growth. This was even as the global economy was going through much uncertainty during that period. Demand in the cargo segment is expected to remain weak over the next two quarters. With the growing popularity of LCCs and improving regional tourism, we are estimating flat growth in SATS’ Airport Services division (which includes ground handling services and cargo). Growth in its Food Solutions business, which includes the stable non-aviation related business, is likely to be helped by improvements at TFK.

Maintain NEUTRAL. Given the global economic uncertainty, we are estimating FY13 earnings to grow 8.1% to S$184.7m. The ICT is expected to be operational in the next month, but positive contribution is only likely in FY14. We continue to like SATS for its stability and strong balance sheet (net cash of 28.3 S¢/share). However, at S$2.60, SATS is trading at 15.6x forward P/E, compared to its historical average of 14.5x.

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