SATS Ltd - Phillip Securities 2017-07-24: Growth In Underlying Net Profit

SATS Ltd - Phillip Securities 2017-07-24: Growth In Underlying Net Profit SATS LTD. S58.SI

SATS Ltd - Growth In Underlying Net Profit

  • SATS' 1Q18 revenue in line with our forecast.
  • 1Q18 underlying PATMI missed our forecast by 4.3%, from higher than forecasted tax.
  • Negative surprise from lower TFK Corp. revenue.

The positives 

  • YoY higher Gateway Services revenue: Due to higher cargo volumes, flights and passengers handled.
  • YoY growth in profit from associates/JVs: 89% YoY higher Food Solutions from a low base to S$3.4 million, and 16.3% YoY higher Gateway Solutions to S$12.1 million.
  • Underlying PATMI improved, despite lower operating profit: This was due to higher contribution from associates/JVs. This was within our expectations, as we had stated in our previous report, “Compression in operating margin offset by higher contribution from Associates & JVs, resulting in stable net profit margin.” 

The negatives 

  • YoY lower Food Solutions revenue: Mainly due to weaker meal volumes at TFK Corp., arising from flight cuts by Delta Air Lines and Japan Airlines. This resulted in 11.0% lower TFK revenue. Non-Aviation Food in Singapore was also lower in relation to a major contract; this should be temporary.
  • YoY lower operating profit: Due to 0.9% increase in expenditure out-pacing the 0.5% growth in revenue. There was an increase in licence fees arising from the cessation of fee rebates at Changi Airport.


  • The outlook remains stable to positive. Key theme of air travel growth and demand for safe food remains intact. SATS will continue to reinvest capital in automation & technology, and in adjacent business lines through associates/JVs. 
  • Airlines are facing low yields, resulting in pricing pressure on SATS; but this may open up opportunities for SATS, as airlines could divest non-core businesses such as catering and ground handling.

Maintain Neutral; unchanged target price of S$5.08 

  • We do not make any adjustments to our full year forecast for FY18e. 
  • Our target price gives an implied FY18e forward P/E multiple of 23.2x. This compares against the STI next 12- months forward P/E multiple of 14.9x.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2017-07-24
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 5.080 Same 5.080