SATS Ltd - Phillip Securities 2016-11-11: Valuations remain rich

SATS LTD S58.SI

SATS Ltd - Valuations remain rich

S$438.5mn 2Q17 revenue in line with our forecast of S$439.3mn.
S$62.1mn 2Q17 PATMI exceeded our forecast of S$59.44mn by 4.5%.
S$862.7mn 1H17 revenue met 48.9% of consensus FY17 expectations of S$1.766bn, and met 49.2% of our FY17 forecast of S$1.754bn.
S$117.6mn 1H17 adj. PATMI met 48.6% of consensus FY17 expectations of S$242.1mn, and met 50.0% of our FY17 forecast of S$235.1mn.
Higher interim dividend of 6 cents declared (5 cents every year since FY10).

TFK turned profitable in 1QFY17 and continues to be profitable this quarter. TFK reported S$71.1mn revenue, representing 33.6% year-on-year (yoy) growth.
Management attributed the higher revenue to the strengthening of JPY against SGD, and the higher volume arises from contribution from the Delta Air Line contract and non-aviation customers.
Although SGD had depreciated 14% yoy relative to JPY in 2QFY17, but costs are denominated in JPY, so a spike in profit is not to be expected.
In view of the higher volume (from both aviation and non-aviation customers), we believe that TFK has achieved critical mass, will enjoy economy of scale and would continue to remain profitable.

Initial volume for the facility at Airfreight Terminal 1 will come from anchor customer, SingPost, which will cease its own airport operations when its lease at Changi Airmail Transit Centre 2 expires.
Management shared that there is no contract with Amazon at this time, but is hopeful on partnering with Amazon.

With the higher interim dividend of 6 cents declared, Management reiterated that dividends would be paid out on a progressive and sustainable model.
After making adjustments to our forecasts, our FY17e/FY18e dividend assumptions have been raised to 17.0/17.0 cents, from 16.1/16.5 cents due to higher earnings (payout ratio unchanged).

We have lowered our wage inflation assumptions (taking a cue from the stabilisation in Staff costs observed this quarter).
Our recurring PATMI is now 6.8%/5.0% higher than previous forecast.
Our target price of S$4.48 represents an implied forward P/E multiple of 19.8x FY17e EPS. (5-year historical average P/E multiple is 17.6x)

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-11-11

Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 4.48 Up 4.240