SATS – OSK DMG

Weaker Japan Operations Weigh On Revenue

SATS posted a 1QFY14 revenue of SGD434.5m (-0.8% y-o-y) on weaker contribution from its TFK subsidiary and a PATMI of SGD46.2m (+11.9% y-o-y). Excluding the writeback for prior year tax provisions and an impairment loss during 1QFY14, PATMI would have risen by 6.8% y-o-y. As passenger traffic growth moderates, Management remains focused on managing costs and raising productivity. Maintain NEUTRAL.

Revenue slightly below expectations. SATS’ 1QFY14 revenue was slightly below our expectations, although PATMI was in line – due to the SGD3.8m writeback of the prior year’s tax provisions and a SGD1.7m oneoff impairment loss. The decline in the JPY, as well as a lower load factor for the Japan-China route, had led to lower business volume for its TFK Corporation subsidiary. Despite that, TFK remained profitable during the quarter under review. Meanwhile, the diversion of Qantas’ European flights to Dubai had an impact on SATS’ overall meal volume.

Outlook stable, but expect challenges. The addition of new flight destinations by airlines, an increase in airline budget for in-flight services offerings and the growth in the low cost carrier segment could help boost SATS’ revenue. However, with the global economy still uncertain, passenger traffic numbers are expected to slow down somewhat. We expect this factor, coupled with the ongoing downtrend for airfreight, to translate into a challenging outlook for the aviation business. The weaker JPY and TFK’s lower business volumes may persist over the next few quarters, although SATS has maintained its positive long-term view on its investment in Japan.

Lower earnings estimate, TP unchanged. We have adjusted our revenue estimate in anticipation of lower revenue growth. We have also tweaked our staff cost assumptions, as SATS has raised some wages. This has prompted us to revise our FY14F PATMI estimates downwards to SGD215.6m. Maintain NEUTRAL.

SATS – OSK DMG

Weaker Japan Operations Weigh On Revenue

SATS posted a 1QFY14 revenue of SGD434.5m (-0.8% y-o-y) on weaker contribution from its TFK subsidiary and a PATMI of SGD46.2m (+11.9% y-o-y). Excluding the writeback for prior year tax provisions and an impairment loss during 1QFY14, PATMI would have risen by 6.8% y-o-y. As passenger traffic growth moderates, Management remains focused on managing costs and raising productivity. Maintain NEUTRAL.

Revenue slightly below expectations. SATS’ 1QFY14 revenue was slightly below our expectations, although PATMI was in line – due to the SGD3.8m writeback of the prior year’s tax provisions and a SGD1.7m oneoff impairment loss. The decline in the JPY, as well as a lower load factor for the Japan-China route, had led to lower business volume for its TFK Corporation subsidiary. Despite that, TFK remained profitable during the quarter under review. Meanwhile, the diversion of Qantas’ European flights to Dubai had an impact on SATS’ overall meal volume.

Outlook stable, but expect challenges. The addition of new flight destinations by airlines, an increase in airline budget for in-flight services offerings and the growth in the low cost carrier segment could help boost SATS’ revenue. However, with the global economy still uncertain, passenger traffic numbers are expected to slow down somewhat. We expect this factor, coupled with the ongoing downtrend for airfreight, to translate into a challenging outlook for the aviation business. The weaker JPY and TFK’s lower business volumes may persist over the next few quarters, although SATS has maintained its positive long-term view on its investment in Japan.

Lower earnings estimate, TP unchanged. We have adjusted our revenue estimate in anticipation of lower revenue growth. We have also tweaked our staff cost assumptions, as SATS has raised some wages. This has prompted us to revise our FY14F PATMI estimates downwards to SGD215.6m. Maintain NEUTRAL.

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