SATS – OCBC

A REASONABLE START TO FY13

•Strong passenger growth in Changi

•Air freight volumes down

•Minimal contribution from MBCCS

Passengers and aircraft up but freight down at Changi

In Changi Airport Group’s (CAG) recently-announced operating statistics for Apr 2012, passenger movements at the airport increased 13% YoY to 4.2m on the back of a 9% YoY climb in aircraft movements to 26,410. However, air freight volume continues to slide, falling 5% YoY to 148,243 tonnes. Despite CAG’s mixed operating statistics for Apr 2012, it bodes well for SATS Ltd (SATS) going into the first month of FY13, since ~70% of its Gateway services revenue is derived from passenger and aircraft handling.

Air freight volumes also down in Hong Kong

Hong Kong International Airport (HKIA) also released lower freight volume in Apr 2012, with cargo handled at HKIA easing 1% YoY to 327,000 tonnes. With the fall in SATS’ share of associates’ profit in FY12 primarily attributed to the fall in freight volumes in Hong Kong and Vietnam, the latest freight number from HKIA should mean SATS’ share of associates’ profit is likely to remain depressed.

First cruise ship at MBCCS

Separately, The Business Times reported that the Marina Bay Cruise Centre Singapore (MBCCS), jointly operated by Creuers del Port de Barcelona S.A. and SATS, will welcome its first cruise ship, the Royal Caribbean International’s Voyager of the Seas, on 26 May 2012. An Oasis-class cruise ship, the Voyager of the Seas will be the largest ship to homeport in Asia in 2012 and, short of docking at a container port, it can only dock at MBCCS in Singapore due to its size. However, SATS expects revenue from MBCCS to grow to ~S$10m only in FY16 or FY17. Thus, MBCCS is unlikely to see meaningful contribution to SATS’ financials in the foreseeable future.

Maintain HOLD

We maintain our fair value estimate of S$2.55/share and HOLD rating on SATS.