SATS – Phillip

Positive Earnings, Attractive Dividends

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.

  • 9% growth in underlying net profit
  • Sequentially better profitability
  • Highest contributions from TFK Corp.
  • Expect attractive yields of 5.5-6.1% over the next 3yrs
  • Upgrade to Accumulate with TP of S$2.94

What is the news?

SATS reported a strong set of results in 2QFY13 with PATMI of S$50.3mn (+25.4%). Revenue growth was broad based (Gateway Services: +7.9%, Food Solutions: +9.3%) with notably strong contributions from TFK Corp, largely due to seasonally effects. Driven by a 0.5ppt improvement in margins, EBITDA outpaced sales growth at SATS. Outlook statement highlights near term weakness due to the expected decline in the air cargo throughput. Interim dividend was kept unchanged at 5.0cents.

How do we view this?

The results were above our expectations on marginally higher level of sales and better profitability. We expect SATS to post another quarter of stellar performance as we enter the seasonally strongest quarter for its core aviation business in Singapore.

Investment Actions?

Based on our payout ratio assumption of 90%, we estimate that the stock would yield 5.5-6.1% over the next 3yrs. We kept of DCF model unchanged, but lifted our target price toS$2.94 due to higher earnings forecasts and upgrade our rating on SATS to Accumulate.

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