SATS (SATS SP) - DBS Research 2017-11-10: Lifted By Strong Associates/JV Income

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SATS LTD. S58.SI

SATS (SATS SP) - Lifted By Strong Associates/JV Income

• SATS' 2Q18 results in line helped by better JV/associates.
• Interim dividend of 6 Scts declared.
• Positive on SATS’ growth prospects at Changi.
• Maintain BUY and S$5.02 TP.

What’s New 

2Q18 within estimates. 

• SATS' earnings of S$72.2m (+16.3% y-o-y) was largely driven by strong associates and JV contribution of S$18m (+56.5%y-o-y). Revenue was S$435m (-0.8% y-oy) as a result of deconsolidation of SATS HK from subsidiary (51% stake) into an associate. Revenue would have increased by 0.9% y-o-y excluding impact from SATS HK.
• Interim dividend of 6 Scts declared, in line with expectations.

Revenue in line, margins slightly below. 

• Revenue growth was led by better performance from non-aviation food segment (S$60.2m, +7.7% y-o-y) and airport services (S$189.7m, +2.3% y-o-y), offset by lower revenues from TFK (S$61.7m, -13.2% y-o-y) on lower meal volumes, and aviation food revenue (S$189.7m, -2.3% y-o-y). 
• Operating profit declined by 3.9% y-o-y to S$61.1m due to cost increases and cessation of rebates by Changi. This resulted in a slight decline in operating margins to 14.1% (-0.4ppt).

Boosted by JVs and associates income, one-off gain. 

• JVs and associate income grew strongly to S$18m (+56.5% y-o-y) mainly due to improvement in Indonesian and Indian entities as well as Evergreen Sky Catering Taiwan and Beijing Kitchen. The quarter also recognised a one-off gain of S$7.1m from reduction of stake in SATS HK and restructuring of Jilin Zhong Xin Cheng Food Co. Ltd. and SG IPF Pte. Ltd.

Maintain BUY and S$5.02 TP. 

• We leave our estimates and TP unchanged. We continue to like SATS for its long-term growth potential from Changi Terminals 4 and 5. 
• The recent memorandum of agreement signed with Turkish Airlines to invest in a catering company in Turkey will also support future growth if the development materialises. 
• The new JV with AirAsia will also see SATS JV/associate network extend ground handling activities to an 88m passenger traffic market in Malaysia, including KLIA, Penang, Kuching and Kota Kinabalu airports with further potential to service new airlines apart from AirAsia. 
• Maintain BUY and S$5.02 TP.

Alfie YEO DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2017-11-10

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 5.020 Same 5.020