Aviation Services

Results commentary. Profits declined for SATS due to the loss on disposal of Daniels Group & cost pressures suffered at its core business. SIAEC recorded the higest level of sales in recent history and had strong contributions from its Joint Ventures. Despite the reversal of sales due to the terminated ROPAX contract, ST Engineering performed better than expected with significant margin improvements.

Maintain Overweight. Our Strategist kept his Overweight rating on the Aviation Services sector. Record fleet delivery into the region suggests favorable long term outlook. The current low interest rates in the market could also favor these high yielding stocks under our coverage.

Valuations. Surplus cash post divestment of Daniels Group supports our non-consensus view that SATS could pay out a special dividend at its full year results announcement. While SATS currently trades at the top end of its historical P/E trading range, we believe that this ignores the cash surplus in the company and expected earnings recovery in FY13E. At 16X Forward P/E, SIAEC’s valuation is in line with historical averages. STE currently trades below its historical average P/E multiples.