Author: kktan
SATS – Phillip
•Revenue increased by 10.7% to S$401.2mn, while PATMI increased 10.5% to S$45.2mn.
•Long term trend of strong aviation performance still intact as observed from proxy indicators.
•Raw material cost for food business could increase pressure on margins.
•Maintain Buy recommendation with target price of S$3.21.
2QFY11 Results Discussion. The result for this quarter is slightly lower than our expectations. We have observed stronger than estimated top line growth driven by increases in both the Food Solutions & Airport Services segment. Our margin estimates were slightly off and that resulted in an overestimate of S$3.4mn to the shareholder’s profit for the quarter. The operating statistics were also slightly below our expectations. Therefore, we revised our full year profit estimates slightly downwards from S$207.6mn to S$191.5mn.
Key Risk. Increase in raw food prices; consumer preference for LCC reduces scope of airport services; third ground handler at Changi Airport.
Valuation. We roll over the BVPS and EPS estimates and used the blended FY11/12 BVPS of $1.43 and EPS of 17.2¢ to get our revised target price of $3.21. Thus, we maintain our Buy call with forecasted total returns of 15.6% after incorporating dividends payout of 13¢ over the next 12 months.
SATS – Phillip
•Revenue increased by 10.7% to S$401.2mn, while PATMI increased 10.5% to S$45.2mn.
•Long term trend of strong aviation performance still intact as observed from proxy indicators.
•Raw material cost for food business could increase pressure on margins.
•Maintain Buy recommendation with target price of S$3.21.
2QFY11 Results Discussion. The result for this quarter is slightly lower than our expectations. We have observed stronger than estimated top line growth driven by increases in both the Food Solutions & Airport Services segment. Our margin estimates were slightly off and that resulted in an overestimate of S$3.4mn to the shareholder’s profit for the quarter. The operating statistics were also slightly below our expectations. Therefore, we revised our full year profit estimates slightly downwards from S$207.6mn to S$191.5mn.
Key Risk. Increase in raw food prices; consumer preference for LCC reduces scope of airport services; third ground handler at Changi Airport.
Valuation. We roll over the BVPS and EPS estimates and used the blended FY11/12 BVPS of $1.43 and EPS of 17.2¢ to get our revised target price of $3.21. Thus, we maintain our Buy call with forecasted total returns of 15.6% after incorporating dividends payout of 13¢ over the next 12 months.
SATS – DBSV
Expect a seasonally stronger 2H
At a Glance
• 2Q11 within expectations with net profit +11% yoy
• Lower EBIT (-4.2%) was mitigated by higher associate contribution (+51%)
• Stronger 2H on further pick up in activities (air travel, airlines yields/load factor, Daniel’s food business)
• Maintain Buy, S$3.13 TP.
Comment on Results
2Q11 within expectations. 2Q11 net profit was up by 10.5% yoy to S$45.2m on the back of revenue growth of 11% to S$401.2m. EBIT declined by 4% as a result of higher cost of raw materials due to rising food prices. However, this was mitigated by stronger Associates/JV contribution of S$15.9m (+51%) compared to S$10.5m in 2Q10. More gateway activities and better margins from food solutions contributed to the increase in Associate/JV income.
Lower EBIT margins cushioned by better Associates/JV performance. EBIT margins came in lower (-1.6ppt yoy) as prices of raw materials increased 15% from S$94.1m to S$108m. Raw material price increase was mainly due to higher food prices in the form of fruits, dairy, rice, and meat products, affected by poorer harvest and natural disasters. Associates/JV however performed strongly (+51%) with higher gateway activities and better margins from food solutions, mitigating the impact of higher raw material prices.
Recommendation
Expect a seasonally stronger 2H11. We are expecting a seasonally stronger 2H on further pick up in activities on increased air travel, airlines yields/load factor improvement, as well as better contribution from SATS’s Daniel’s food business. However, rising food prices could be a dampener on our earnings estimates although we believe that the effects of rising food prices will be minimised through SATS’s diversified supply base. We are expecting the associates/JV to turn in better 2H performance as air travel improves going forward, and therefore believe that the effects of higher food prices and increased air travel in 2H will cancel out each other. Interim dividend of 5c was declared. Maintain Buy, TP unchanged at S$3.13.
Thomson Medical – BT
Healthcare stocks ride on offer news
FIRST, Parkway Holdings found itself being pursued by suitors. Now, Thomson Medical Centre, with its niche focus on obstetrics and gynaecology as well as paediatric services, has piqued the interest of Singapore’s high-profile investor Peter Lim – and this isn’t the first time that interested parties have come a-calling for Thomson Medical either.
Last week, it was announced that Mr Lim had launched a general offer for Thomson Medical at $1.75 per share, which values the company at about $513 million. This comes on the heels of Mr Lim’s purchase – via his investment holding company Sasteria – of a 39.34 per cent stake in Thomson Medical, which he bought from Thomson Medical’s founder Cheng Wei Chen and his family.
According to an announcement filed with the Singapore Exchange yesterday, Sasteria has acquired a further 3.34 per cent in the company at an average price of $1.746 a share, beefing up its stake to a total of 42.68 per cent. One of the reasons cited for Mr Lim’s interest in the company is Thomson Medical’s potential to develop further as a regional healthcare company.
So it’s probably no coincidence that the general offer comes at a point when Thomson Medical’s consultancy and management project in Vietnam – the Hanh Phuc International Women and Children Hospital in Binh Duong Province – is opening its doors, and as the group is scouring potential sites for a second hospital in Vietnam.
Closer to home, recent additions to its portfolio, such as the Thomson Women Cancer Centre and the fairly new Thomson Paediatric Centre, are making healthy contributions to the group’s financial performance. Mr Lim also holds a sizeable stake in Malaysia-based TMC Life Sciences, which specialises in fertility treatment and stem cell banking, which suggests that there are synergies to be had between Thomson Medical and TMC Life.
Mr Lim’s general offer for Thomson Medical seems to have rejuvenated interest in healthcare stocks. Shares in Thomson Medical closed at $1.75 yesterday, but other stocks in the sector have also risen since news of the general offer broke last Friday. Parkway Life Reit gained two cents to close at $1.68 yesterday. Shares in Raffles Medical shed six cents to close at $2.24 yesterday, but this is still six cents higher than Friday’s closing price. However, shares in Healthway Medical Corp remained unchanged at 15.5 cents at yesterday’s closing, after gaining 3.3 per cent in Monday’s trading session.
But the question now is whether Thomson Medical will remain listed. At an offer price of $1.75 per share – the highest share price the company has ever been valued at since it went public in 2005 – the offer is an attractive one, representing a 62 per cent premium over the last traded price prior to the announcement. It is also more than double the average closing price of 82 cents per share for the six-month period prior to the offer.
As one analyst pointed out, the pool of healthcare stocks on the SGX has been narrowing this year, with few reputable listed private healthcare players left.
Mr Lim’s bid for the company comes just some months after Malaysia’s Khazanah Nasional and India’s Fortis Healthcare were embroiled in a corporate battle for Parkway. And according to an announcement on the SGX yesterday, applications have been made to the SGX to delist Parkway. This comes on the back of Khazanah’s unit, Integrated Healthcare Holdings, announcing in mid-October that it was exercising its right of compulsory acquisition to acquire the remaining 5 per cent or so that it did not own in Parkway.
With all the interest in Parkway and Thomson Medical in recent months, investors who snapped up shares in Raffles Medical this week are clearly banking on it being next in line to be the belle of the ball. 
Thomson Medical – BT
Thomson Medical jumps on offer report
DMG advises investors to accept offer by Peter Lim
SHARES in Thomson Medical Centre shot up to $1.76 during trading yesterday before finally closing at $1.75 on last week’s news that private investor Peter Lim had launched a general offer for the company.
The closing price of $1.75 per share represents a 62 per cent increase from the previous close.
However, Thomson Medical wasn’t the only healthcare stock that made significant gains following the announcement – shares in Raffles Medical Group hit a high of $2.38 before ending the day’s trading at $2.30, up 12 cents or 5.5 per cent.
It was announced last Friday that Mr Lim is making an offer at $1.75 per share, which values the company at about $513 million. This comes on the heels of Mr Lim’s purchase – via his investment holding company Sasteria – of a 39.34 per cent stake in Thomson Medical, which he bought from Thomson Medical’s founder Cheng Wei Chen and his family.
Other substantial shareholders in Thomson Medical include Harilela (Singapore) Private Limited – which holds about 17.08 per cent – and Kabouter Management, which holds around 5.01 per cent.
The cash offer is conditional on Sasteria acquiring more than 50 per cent of Thomson Medical.
BT understands that where Thomson Medical’s management is concerned, there are no plans for change.
In a report yesterday, DMG & Partners Research advised investors to accept the offer, pointing out that the offer prices the stock at 30x FY11 P/E. It also has a ‘buy’ call on Raffles Medical, with a target price of $2.40.
Mr Lim’s offer for Thomson Medical comes some months after a takeover battle played out for local hospital operator Parkway Holdings, which has 16 hospitals in Asia. In July, Malaysia’s sovereign wealth fund Khazanah Nasional made a $3.5 billion general offer for the shares in Parkway that it did not own, trumping an earlier $3.2 billion offer by India’s Fortis Healthcare. Fortis’ Malvin-der and Shivinder Singh have since gone on to acquire the healthcare businesses of Hong Kong-based Quality Healthcare Asia (QHA) – excluding QHA’s elderly healthcare businesses – for over HK$1.5 billion (S$250 million).
‘The offer price values TMC at about 29.5x consensus FY11 PER, which is almost on par with Parkway Holdings’ valuation when Khazanah launched a full takeover offer for the company in July this year at $3.95/share,’ Kim Eng said in a research report yesterday. ‘Bearing in mind that TMC’s revenue base in 2009 is 15 times smaller than Parkway’s, it seems like Peter Lim does not make a differentiation between the size and business models of the hospitals as long as he gets a piece of the action in the healthcare sector.’
The report went on to point out that Raffles Medical was ‘probably the only reputable private healthcare player left listed now’, though it also highlighted that Parkway Life Real Estate was another way to invest in the healthcare sector.