SATS LTD
S58.SI
SATS - Helped By Better Traffic, Brf Disposal
Better earnings traction priced in.
- We believe that upside is capped. 3Q16’s seasonally stronger performance was in line with expectations, led by higher passenger and flight volumes and uptick in TFK recovery.
- Despite improving numbers from Changi and TFK, the stock is valued at +1.5SD of its four-year mean PE valuation and -1.5SD of its three-year historical dividend yield, suggesting that the better earnings prospects are already reflected in the current price.
- Our earnings forecast has already assumed a modest 7% earnings growth for FY17F, backed by revenue growth from higher aviation activity and margin improvement from cost efficiencies.
4% dividend yield lends support to share price.
- We also believe that downside to the stock is limited since it is supported by 4% dividend yield.
- SATS generates strong cashflows and has a net cash balance sheet capable of supporting current DPS of 14-15 Scts going forward, with little risk of any DPS cut.
Higher earnings to be backed by better cost structure.
- 3Q16’s e. revenue continued to lag 3Q15 (-2% y-o-y) but EBIT grew 21% y-o-y largely due to the absence of low margin BRF business, which was disposed in 1Q16. Hence, we believe higher margins will now be sustainable.
Valuation:
- Blended DCF model and PER valuation methodology. Both valuation matrices account for stable predictable cashflows and potential earnings growth.
- Our TP, which is based on the average of discounted cash flow (DCF) valuation (7.7% weighted average cost of capital and 2% terminal growth assumption) and price-earnings valuation pegged to 17x FY17F earnings, is S$3.65.
Key Risks to Our View:
- SATS could see further earnings and TP upside through stronger-than-expected recovery at Changi and regional aviation traffic.
Alfie Yeo
DBS Vickers
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Andy Sim
DBS Vickers
|
http://www.dbsvickers.com/
2016-02-15
DBS Vickers
SGX Stock
Analyst Report
3.65
Same
3.65
