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
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http://www.maybank-ke.com.sg/
2016-07-22
Maybank Kim Eng
SGX Stock
Analyst Report
3.76
Down
3.86
