SATS Ltd - CIMB Research 2016-12-05: Tired bull

SATS LTD S58.SI

SATS Ltd - Tired bull

In the search for cyclicals, SATS may be out of favour after its outperformance in 2016 as growth momentum stablises.
At 21x CY17 P/E, it is trading at +2s.d above mean.
Maintain Hold with an unchanged target price (S$4.95), still based on blended valuations of DCF (WACC:7.6%) and 19x CY18F P/E.

SATS’s 2Q17 net profit was partially lifted by translation profits from TFK Japan, although Delta’s contract would have improved some meals volume.
The downward trend in the yen from Sep 16 could result in a flat hoh 2H17, disappointing the market’s expectations as SATS had been delivering five consecutive hoh earnings growth.

Changi’s passenger growth in 2016 benefited from the strong yoy increase in tourist arrivals. We are projecting a 5-6% yoy revenue growth for SATS on the back of rising tourist numbers and passenger throughput at Changi.
There is a risk of an earnings miss if either of these numbers fail to materialise.

SATS is a long-term growth story. The opening of Changi’s Terminal 4 may not see an immediate surge in operating statistics as only AirAsia and Cathay Pacific will be moving to there.
The partnership with SingPost in airmail consignment handling services could leverage on the SingPost-Alibaba ecommerce linkage.
Cargo volume could see some uplift from Amazon’s presence in Singapore.
The partnership with Wilmar to build a kitchen near Shanghai could contribute in the long run.

Management has guided that the final DPS will track 2H17's performance. We see little upside to our S$0.16 FY16F DPS unless volume growth surprises on the upside.
We believe SATS’s current valuation of 21x forward P/E (1 s.d. above 10- year mean) is fair on the back of its 7% earnings growth p.a.
Re-rating catalysts for the stock could come from stronger-than expected margins and Changi volume.
A key risk is a general slowdown in air traffic within Asia.

LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2016-12-05

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 4.950 Same 4.950