TFK signs on Delta Air
- Subsidiary TFK signs on Delta Air for JPY30b/SGD325m. Delta to close own kitchen in Narita.
- Much needed revenue boost for TFK. Expect it to turn profitable from FY16E. Raise EPS by 1.8-2.5%.
- Lift TP to SGD3.21 from SGD3.15, still at 16x FY16E EPS. Maintain HOLD, pending stronger air traffic trends.
Delta closing own kitchen; switching to TFK
- SATS announced that TFK Corporation, its 59.4%-owned inflight caterer in Japan, has secured a multi-year contract worth c.JPY30b or SGD325m from Delta Air Lines (note).
- The actual contract value will depend on the number of flights flown by Delta. The US-based airline currently operates 22 peak-day flights from Narita and Haneda. It will close its own inflight-catering kitchen in Narita after switching to TFK.
Expect TFK to turn profitable
- As TFK has been reeling under overcapacity in Japan’s inflightcatering market, this contract should provide a much-needed shot in the arm. And given Delta’s long-haul flights, we expect meal values to be high.
- Assuming a typical 3-year term with the option for another three years, we estimate annual contract values of SGD54m. This approximates 24% of TFK’s revenue of SGD221m in FY15.
- Furthermore, we expect better economies of scale to help TFK turn profitable from FY16E onward.
- We raise SATS’s FY16E-18E EPS by 1.8%-2.5% for stronger TFK contributions and our TP to SGD3.21 from SGD3.15. This is still based on 16x FY16E EPS, 0.5SD above its 10-year average.
- While we view this news positively, we would await stronger air traffic trends.
- Maintain HOLD.
(Derrick Heng, CFA)
Source: http://www.maybank-ke.com.sg
