SATS – Phillip
Healthy growth on seasonal strength
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.
- 7.6% growth in underlying net profit.
- Guidance positive for passenger travel business, while air freight business is expected to remain weak.
- We expect dividend yields to sustain above 5% over the next few years.
- Maintain Accumulate with TP of S$3.33.
What is the news?
Driven by strong performance of its aviation business units in Singapore, SATS reported a 23% surge in profit for 3QFY13. When normalized to exclude one-off items in the previous quarter, underlying profits improved by 7.6%. EBITDA margins were stable at 15.0% (vs 3QFY12: 15.5%). Contribution from TFK was mildly impacted by a decline in traffic flows due to a seasonally stronger 2QFY13 and depreciation of the JPY. Outlook statement is positive for the passenger travel business, while the air freight business is expected to remain weak.
How do we view this?
As guided in our commentaries for the results season, the surge in profits was expected due to a seasonally stronger quarter for the aviation business in Singapore. CAPEX for 9MFY13 of S$28.4mn is significantly lower than its normalized level of S$50-70mn a year, which could lead to cash build up by the end of FY13E.
We maintain our view that SATS have the capacity to dish out significantly higher levels of dividends to shareholders over the next few years. Assuming a 90% payout ratio, we forecast dividend yields of >5% over the next few years. Maintain Accumulate with revised TP of S$3.33, as we roll forward our valuation basis.