Cruise control

SATS wrapped up FY13 on a pleasant note, not only reporting stronger-than-expected profits but also dishing out higher-than-expected dividends.

FY13 core net profit surpassed Street and our expectations by 8% on the back of margin strength. We fine-tune our FY14-15 EPS by less than 1% and raise our target price (still at 16.8x CY14 P/E, 1SD above its 8-year mean) marginally. Maintain Outperform with re-rating catalysts to come from growth in Changi Airport’s passenger traffic.

Leveraging Changi Airport’s growth

We expect strong intra-Asia travel to buoy SATS’s revenue. Stronger passenger volume had lifted its FY13 revenue by 8% yoy, with revenue growth across the board: gateway services (+8%) and food solutions (+8%). High staff costs were mitigated by slower rises in raw-material costs, supporting a 0.6%-pt expansion in EBIT margins to 10.6%. Excluding a S$16.8m impairment charge relating to its divestment of Daniels, core net profit grew 20%.

Gateway services hit by labour costs

Costlier labour took a toll on gateway services EBIT (-54%). Wage inflation was attributed to headcount increases and foreign-worker levies. Fortunately, growth from food solutions overwhelmed the weakness. EBIT margins from food solutions gained 2.8% pts, thanks to slower rises in raw-material costs and productivity gains.

Dividend sweetener

A 6ct final dividend and 4ct special dividend was declared, taking FY13 DPS to 15cts, above our 11.8ct forecast. Dividend prospects remain favourable with SATS enjoying positive free cash flows and a net-cash position.

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