Reaping productivity gains
- 1Q16 marginally ahead on lower costs, associates contribution.
- Focus on productivity continues to reap rewards.
- Raise FY16/17F earnings by 5%/9% on the back of lower cost assumptions.
- TP raised to S$3.43 but maintain HOLD; stock offers 4.1% yield.
1Q16 slightly ahead on lower costs, associates contribution.
- SATS’ 1Q16 (FYE Mar) core net profit of S$47.1m (+8.5% y-o-y) was marginally ahead of our expectations.
- While revenue dipped 4% y-o-y to S$416.9m, the stronger bottomline performance came from lower operating costs which declined 6% to S$372.9m and higher contribution from associates/ JV (+23%).
- The fall in revenue was from Food Solutions which in turn was due to TKF Corporation, divestment of a subsidiary and transfer of its food distribution to a newly formed JV.
Focus on cost control measures paying off; benefitting from lower utilities, licensing fees.
- The key surprise came from its ability to manage costs; all expense items dropped except for depreciation and amortization.
- In particular, cost of raw materials declined by S$9.4m (-11% y-o-y) on the back of management’s efforts to consolidate its supply chain and hence derive savings.
- Going forward, management expects this trend to remain sustainable.
- Staff costs dipped by 2% (-S$3.8m) to S$200.1m given lower headcount of 14,000, a reduction of 550 from a year ago.
- The lower cost also came from energy and utilities, coupled with licensing fee rebates from Changi Airport Group.
Raised FY16/17F by 5%/9%; TP raised to S$3.43, maintain HOLD.
- We raised our FY16F/17F earnings by 5%/9% on lower cost assumptions as we believe management efforts to control costs should be sustainable.
- Along with this, our DCF/ PE backed TP is raised to S$3.43.
- The counter is trading at 19.1x FY16F PE, which is +1.5 SD above its 5-year historical average.
- We believe this has largely priced in the positives. That said, prospective dividend yield looks attractive at 4.1%.
- Maintain HOLD.
(Alfie YEO; Andy SIM, CFA)
Source: http://www.dbsvickers.com/
