SATS - Maybank Kim Eng 2016-02-15: Solid earnings amidst market turmoil

SATS - Maybank Kim Eng 2016-02-15: Solid earnings amidst market turmoil SATS LTD S58.SI 

SATS (SATS SP) - Solid earnings amidst market turmoil 

Maintain HOLD; Robust earnings outlook priced in 

  • We maintain HOLD and SGD3.82 TP (18x FY3/17E EPS) on SATS. 
  • While the company’s earnings outlook remains robust (FY15-18 CAGR of 7.6%), we believe the rosy picture is already priced in. 
  • Our TP is based on 18x PER, which is 1 SD above its historical average to reflect robust earnings outlook. 
  • However, we see limited upside at current valuations. 

3Q16 in-line; Healthy margins 

  • 3Q16 net income of SGD60.6m (+12.8% YoY, +1.5% QoQ) was inline with 9M16 at 75% of our full year estimate. 
  • The decline in operating costs outpaced the fall in revenue with EBIT margins improving by 2.7ppt to 14.0%. 
  • The sharp 29% decline in non-aviation revenue to SGD69.9m is not a concern as it is driven by the de-consolidation of its food distribution business to its new JV with BRF. 

Uptick in aviation sales; Management stays cautious 

  • Aviation revenue improved by 5.3% YoY to SGD370m. This was driven by higher workload from the return of Jetstar as its ground handling customer and better TFK contributions. 
  • The bottom line was also helped by the SGD2m decline in licence fees due to rebates received from Changi Airport. 
  • Despite the positive performance, management appears cautious, flagging the challenging operating environment due to economic uncertainty and low consumer confidence. 

Strong contributions from Japan 

  • Revenue for its inflight catering business in Japan improved by 14.5% YoY to SGD60.0m. The stronger contribution was driven by better underlying performance from the start of its contract with Delta in Oct 2015. 
  • We expect its operations in Japan to benefit from the surging visitations to the country.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-15
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.82 Same 3.82