SATS Ltd - OCBC Investment 2017-11-10: Earnings Lifted By Associates And JVs

SATS Ltd - OCBC Investment 2017-11-10: Earnings Lifted By Associates And JVs SATS LTD. S58.SI

SATS Ltd - Earnings Lifted By Associates And JVs

  • 1HFY18 within expectations.
  • Several catalysts drive long-term growth.
  • Reiterate BUY.

Core 1HFY18 PATMI met 51% of FY estimate 

  • SATS Limited’s (SATS) 2QFY18 core PATMI, which excludes the S$7.0m gain on disposal of equity interest in SATS HK (SHK) and restructuring of Jilin JVCo, increased 5.0% YoY to S$65.2m. 
  • Revenue fell slightly by 0.8% YoY to S$434.8m, as growth in Gateway Services (+2.3%) was offset by decline in Food Solutions (-3.1%) mainly due to weaker operations in Japan on lower volume of meals. 
  • As a result of deconsolidation impact of SHK, 2QFY18 operating expenses fell slightly by 0.3% YoY to S$373.7m. However, share of after-tax profits from associates/JVs jumped 56.5% to S$18.0m on higher contribution from Indonesia, India and China. 
  • For 1HFY18, revenue fell 0.2% YoY to S$861.3m while operating expenses rose 0.3% to S$746.7m on higher licence fees as well as depreciation and amortization charges. Share of after-tax profits from associates/JVs surged 41.4% YoY to S$33.5m. Consequently, 1HFY18 core PATMI grew 2.6% YoY to S$129.5m.

Several positive catalysts ahead 

  • Looking ahead, we see several positive longterm growth drivers. 
  • More notably, it recently entered into a ground handling partnership with AirAsia that is expected to commence before end FY18. The partnership will expand SATS’ footprint to some of the busiest airports in Malaysia while allowing AirAsia to take a stake in its Changi Airport Terminal 4 ground handling entity. We view this partnership positively as it creates opportunities for SATS to explore expansion into Indonesia, Philippines and Thailand, of which AirAsia already has an established presence in all three. 
  • Another potential partnership that we deem positive for SATS is the one with Turkish Airlines (THY) relating to the provision of in-flight catering services to THY and other airlines at Istanbul New Airport – it makes sense as THY will be able to provide large enough volume for SATS to invest into a catering company at the Istanbul New Airport. That said, SATS has only entered into a memorandum of agreement with THY, with any completion of transaction subject to fulfilment of certain conditions.

Supported by 3.8% forward dividend yield 

  • Hence, on in-line results, we opt to keep our forecasts largely unchanged for now. 
  • Maintain BUY with S$5.05 FV estimate.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-11-10
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 5.050 Same 5.050