SATS - Maybank Kim Eng 2016-07-22: Credible results; lofty valuations

SATS - Maybank Kim Eng 2016-07-22: Credible results; lofty valuations SATS LTD S58.SI 

SATS (SATS SP) - Credible results; lofty valuations

Reiterate SELL on rich valuations

  • SATS reported a credible set of results. 
  • Better underlying net profit was driven by a turnaround in profitability at TFK. However, stronger performance for this inflight catering unit was widely expected and should not be a positive surprise. 
  • Management refuted recent media reports of more intense competition at Changi Airport for ground handling. 
  • While SATS should continue to report decent performance, we reiterate valuations are rich at peak multiples of 20x P/E and forward yield of just 3.7%. 
  • Maintain SELL with unchanged TP of SGD3.76, based on 17x FY18 EPS, 0.5SD above historical mean for stable EPS growth profile. 
  • We are less bullish than the street on its earnings growth trajectory.

1Q17 inline; Headline profit boosted by disposal gain

  • 1Q17 was in line. Headline net profit rose by 29.2% YoY to SGD64.1m. 
  • The strong set of results was helped by a SGD9.3m gain on disposal of an industrial property. This was partially offset by SGD0.7m of losses relating to change of interest in two associates. Excluding these one-off items, underlying net profit was SGD55.5m (+17.8% YoY, +5.5% QoQ), which achieved 23.4% of our full-year forecast.

Turnaround in TFK, as expected

  • Stronger workload from its contract with Delta led to a 36% YoY improvement in sales to SGD66.2m at TFK, its inflight catering arm in Japan. This helped it turn profitable from losses in the comparable quarter last year. 
  • While positive, we note this improvement was well- flagged by the market and should not be a positive surprise.

Refutes claims of heightened competition at Changi

  • Management refuted media reports of more intense competition for ground handling services at Changi Airport. 
  • SATS has stopped disclosing quarterly operating statistics and will report these figures on a half- yearly basis. Nonetheless, management highlights it has not conceded market share and has grown in line with the market.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-22
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 3.76 Down 3.86