SATS Ltd - OCBC Investment 2016-04-07: Beneficiary of Changi Airport Growth

SATS Ltd - OCBC Investment 2016-04-07: Beneficiary of Changi Airport Growth SATS LTD S58.SI 


  • Solid traffic statistics at Changi Airport
  • JV with Oman Air for cargo handling
  • Maintain HOLD

Positive surprise from Jan and Feb 16 traffic growth 

  • Singapore Changi Airport recently released encouraging traffic statistics as Jan 16 and Feb16 passenger throughput jumped 10.0% and 11.7% YoY, respectively. 
  • Correspondingly, commercial aircraft movements at Changi Airport also grew 4.8% (Jan 16) and 7.7% YoY (Feb 16). 
  • According to the Singapore Tourism Board, Jan 16 visitor arrivals (all modes of transport) grew 12.2% YoY, mainly driven by visitors from Australia, China, India, Indonesia and Thailand. 
  • Specifically, Chinese visitor arrival by air jumped 56.1% YoY in Jan 16, registering 10 consecutive months of YoY growth. 
  • Recall that Chinese visitors to Southeast Asia plunged after the MH370 incident on 8 Mar 14. 
  • With ~80% market share in Changi Airport providing gateway services and food solutions to airlines, we believe SATS Ltd (SATS) is a key beneficiary of such strong traffic growth registered in the first two months of 4QFY16, and even beyond if the rebound in Chinese tourism to Southeast Asian countries continues to sustain. 

Joining forces with Oman Air 

  • Continuing its overseas expansion strategy, SATS also announced a JV with Oman Air SAOC (Oman Air) for cargo handling at Muscat International Airport. The JV agreement will see Oman Air transfer its cargo handling business and related assets to the JV company, which SATS will pay ~S$22.5m for 33% stake in it. 
  • The new JV will become the single source provider of cargo handling services first at the existing cargo facility, and subsequently at the new cargo terminal in Muscat International Airport. 
  • Management also noted that there are opportunities to develop cold-chain handling capabilities, which usually command higher margins for its cargo business. 
  • We have yet to factor in any impact from this JV due to lack of details over Oman Air’s cargo business before the transfer to the new JV. 

Decent FY16F dividend yield of 4.1% 

  • However, with SATS due to report its 4QFY16 results early next month, we opt to keep our forecasts unchanged for now and maintain HOLD on SATS with an unchanged FV of S$4.00.

Eugene Chua OCBC Securities | http://www.ocbcresearch.com/ 2016-04-07
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 4.00 Same 4.00