Month: March 2012
SATS – BT
SATS acting CEO named president, CEO
Tan Chuan Lye’s promotion takes effect from April 1 and comes after an eight-month global search
AFTER an eight-month global search, SATS Ltd has confirmed acting CEO Tan Chuan Lye as its president and CEO with effect from April 1.
In an announcement yesterday, SATS said it had decided to retain and promote Mr Tan ‘following a rigorous selection process involving a number of outstanding internal and external candidates for this role’.
Mr Tan took over as acting CEO and executive vice-president, food solutions, of SATS, following the sudden and unexplained departure of previous CEO and president, Clement Woon, in July last year.
Mr Woon, who came to the company in November 2007 after a 10-year stint in Switzerland with spatial surveying company Leica Geosystems AG, cited his decision to ‘pursue personal interests’ at the time.
Under Mr Woon’s stewardship, SATS broke away from its erstwhile parent Singapore Airlines (which owned 81 per cent of SATS) and created its own branding and identity. Instead of focusing only on the aviation business which was highly cyclical, it decided to diversify its business. In 2009, the company acquired Singapore Food Industries, a food manufacturer and supplier.
Mr Tan is himself a seasoned veteran of the aviation industry, and has been with SATS since 1976.
In a career spanning 35 years, he has held managerial and key decision-making positions in SIA Ground Services and SATS Airport Services, and was responsible for both SIA and SATS’ Changi Terminal 2 operations. He was appointed senior vice-president for catering in 2000 and was promoted to executive vice-president, food solutions, in 2009 to oversee and grow SATS’ aviation and non-aviation food businesses.
SATS chairman Edmund Cheng said the company was pleased to select Mr Tan to helm it.
‘Since he assumed the position of acting CEO in July 2011, Chuan Lye has demonstrated strong leadership capabilities and was ably supported by his management team and staff,’ he said. ‘Over the years, he has been closely involved in growing and transforming SATS to what it is today.’
SATS reported a 25.4 per cent drop in net profit to $38.2 million for the third quarter to end-December 2011 due to rising costs, falling contribution from joint ventures and associates, and a weaker US dollar.
For the nine months ended December 2011, SATS posted net profit of $120.8 million, down 14.1 per cent from $140.7 million a year earlier.
In October 2011, SATS announced the disposal of Daniels Group in the UK, recognising a loss on disposal of $5.5 million.
The company now faces a second competitor at Changi with the emergence of US-based Aircraft Service International Group, while the aviation sector is flying into turbulence due to high fuel costs and flattish yields.
Its Singapore International Cruise Terminal venture, where it has a 60 per cent stake in a partnership with Creuers Cruise Services holding the remaining share, is not expected to be profitable until the end of next year.
STEng – Kim Eng
Prized for stability and attractive yield
The big picture. Investors buy ST Engineering (STE) for its attractive 5% dividend yield. On its part, the company continues to deliver on its earnings despite a challenging environment. However, share price upside is limited by a lack of fresh catalysts. While we believe that the negative press on its India defence issue is overblown, any pullback on the back of this presents a good entry point. Fundamentally, the stock remains a Hold as the forward PER of 17x represents full value.
India debarment not a big deal. STE’s defence-related subsidiary ST Kinetics was blacklisted by India’s Criminal Bureau of Investigation in connection with a corruption probe at India’s defence procurement agency. STE said there is no evidence implicating them. However, with a reputation to protect, we understand its insistence in clearing its name. Though India has never been a major contributor to its defence earnings, the country’s potential as a major arms buyer is significant. A clean reputation is useful in bidding for defence contracts globally.
Yields sustainable. Following its 7% growth in net earnings for FY11, STE declared a final and special dividend totalling 12.5 cents per share for a full-year payout of 15.5 cents per share, or a yield of 4.9%. Exdate is 25 April 2012. Even though STE expects to maintain its healthy payout ratio of 90% of earnings, we note that it was cash-flow-negative in 2011 due to higher working capital on negative variances in receivables and advances, as well as higher capex. We expect this situation to normalise in FY12. Cash and equivalents stands at $1.36b.
Neutral, all things considered. STE’s $12.3b orderbook supports earnings across the different divisions. It also has a healthy mix of commercial and military contracts. The company expects to achieve higher earnings for FY12, which is in line with our forecast of a modest 7% earnings growth. This will support its dividend payout and mitigate any downside. However, a lack of clear catalysts also limits upside, hence our Hold recommendation on the stock. Our target price of $2.88 remains pegged at 15x forward earnings, in line with its historical mean.
STEng – Kim Eng
Prized for stability and attractive yield
The big picture. Investors buy ST Engineering (STE) for its attractive 5% dividend yield. On its part, the company continues to deliver on its earnings despite a challenging environment. However, share price upside is limited by a lack of fresh catalysts. While we believe that the negative press on its India defence issue is overblown, any pullback on the back of this presents a good entry point. Fundamentally, the stock remains a Hold as the forward PER of 17x represents full value.
India debarment not a big deal. STE’s defence-related subsidiary ST Kinetics was blacklisted by India’s Criminal Bureau of Investigation in connection with a corruption probe at India’s defence procurement agency. STE said there is no evidence implicating them. However, with a reputation to protect, we understand its insistence in clearing its name. Though India has never been a major contributor to its defence earnings, the country’s potential as a major arms buyer is significant. A clean reputation is useful in bidding for defence contracts globally.
Yields sustainable. Following its 7% growth in net earnings for FY11, STE declared a final and special dividend totalling 12.5 cents per share for a full-year payout of 15.5 cents per share, or a yield of 4.9%. Exdate is 25 April 2012. Even though STE expects to maintain its healthy payout ratio of 90% of earnings, we note that it was cash-flow-negative in 2011 due to higher working capital on negative variances in receivables and advances, as well as higher capex. We expect this situation to normalise in FY12. Cash and equivalents stands at $1.36b.
Neutral, all things considered. STE’s $12.3b orderbook supports earnings across the different divisions. It also has a healthy mix of commercial and military contracts. The company expects to achieve higher earnings for FY12, which is in line with our forecast of a modest 7% earnings growth. This will support its dividend payout and mitigate any downside. However, a lack of clear catalysts also limits upside, hence our Hold recommendation on the stock. Our target price of $2.88 remains pegged at 15x forward earnings, in line with its historical mean.
SIA Engg – CIMB
Steady take-off
SIA Engineering has all the ingredients of a quality stock: stable earnings growth, high ROEs, net cash, attractive dividend yields and undemanding valuations against peers.
We peg a higher P/E of 15x (5-year mean) in our blended valuation (previously 10x on recession trading band) following a more positive MRO outlook. We refine our EPS as we update some assumptions. Maintain Outperform with catalysts anticipated from strong earnings growth.
More heavy checks
We believe SIA’s workload alone can sustain utilisation rates at all of SIE’s six hangars. About 41 of SIA’s aircraft are due for D checks in 2012-13, in our estimation. These would comprise the first “D” checks (after five years of flying) for six A380-841s and 12 B777-312s. There are also 18 B777-212s scheduled for second “D” checks (after 10 years of flying). Management expects the hangars to be at least 70% utilised in the next five years, backed by long-term contracts and current order book.
Bullish on MRO
We are bullish on the MRO industry. According to the latest statistics released by IATA, asset utilisation for airlines in the passenger market had improved in Jan, even after adjusting for high Chinese New Year load factors. Despite climbing oil prices, passenger load factors remained at historical highs. As aircraft utilization rises, we expect demand for heavy maintenance services to rise.
Earnings recovery unappreciated
SIE has outperformed the market by about 11% since our upgrade in Feb 12. We see room for further upside given the steady growth of its MRO usiness. As risks of an economic downturn dissipate, we see a less likelihood of capacity cuts by airlines. In a bull market, SIAE could trade up to 19x forward P/E. We believe the market has not priced in its earnings growth of 5-7% through 2014 as SIE is trading at its Mar 10 valuations when its earnings dipped 10%. We prefer SIE to ST Engineering for its more attractive valuations (14x CY13 P/E vs. 17x CY13 P/E).
SIA Engg – CIMB
Steady take-off
SIA Engineering has all the ingredients of a quality stock: stable earnings growth, high ROEs, net cash, attractive dividend yields and undemanding valuations against peers.
We peg a higher P/E of 15x (5-year mean) in our blended valuation (previously 10x on recession trading band) following a more positive MRO outlook. We refine our EPS as we update some assumptions. Maintain Outperform with catalysts anticipated from strong earnings growth.
More heavy checks
We believe SIA’s workload alone can sustain utilisation rates at all of SIE’s six hangars. About 41 of SIA’s aircraft are due for D checks in 2012-13, in our estimation. These would comprise the first “D” checks (after five years of flying) for six A380-841s and 12 B777-312s. There are also 18 B777-212s scheduled for second “D” checks (after 10 years of flying). Management expects the hangars to be at least 70% utilised in the next five years, backed by long-term contracts and current order book.
Bullish on MRO
We are bullish on the MRO industry. According to the latest statistics released by IATA, asset utilisation for airlines in the passenger market had improved in Jan, even after adjusting for high Chinese New Year load factors. Despite climbing oil prices, passenger load factors remained at historical highs. As aircraft utilization rises, we expect demand for heavy maintenance services to rise.
Earnings recovery unappreciated
SIE has outperformed the market by about 11% since our upgrade in Feb 12. We see room for further upside given the steady growth of its MRO usiness. As risks of an economic downturn dissipate, we see a less likelihood of capacity cuts by airlines. In a bull market, SIAE could trade up to 19x forward P/E. We believe the market has not priced in its earnings growth of 5-7% through 2014 as SIE is trading at its Mar 10 valuations when its earnings dipped 10%. We prefer SIE to ST Engineering for its more attractive valuations (14x CY13 P/E vs. 17x CY13 P/E).