SATS Ltd - OCBC Investment 2019-01-11: Hold On For A Better Entry

SATS LTD. (SGX:S58) | SGinvestors.io SATS LTD. (SGX:S58)

SATS Ltd - Hold On For A Better Entry

  • SATS share price up 7.6% over last five trading sessions.
  • Some growth in Changi Airport.
  • Downgrade with limited upside.

Diminishing upside post share price appreciation

Some growth in operating statistics at Changi Airport

  • Singapore’s Changi Airport has posted mixed operating statistics for Nov 2018 as passenger throughput grew 4.5% y-o-y, aircraft movements fell1.3% and air freight movements rose by 2.5%. For the period from Jan – Nov 2018, y-o-y growth for passenger throughput was 5.6%, 1.9% for aircraft movements and 3.6% for air freight movements. In general, these growth figures were weaker compared to the growth that we saw in Jan-Nov 2017 vs. 2016.
  • Traffic growth at Changi Airport has a direct impact on SATS LTD. (SGX:S58) as we estimate SATS to handle about 80% of the traffic throughput there. In the longer term, the addition of Terminal 5 to Changi Airport (construction to begin 2020) will benefit SATS since it is the dominant ground handling provider at Changi Airport.

Monitoring pricing pressures from airline industry

  • Trade tensions and weaker sentiment have impacted emerging market currencies and trade volumes. Competition in the airline industry may also continue to result in pricing pressures on SATS, though the lower oil price is a near term reprieve for the industry.
  • SATS is currently trading at 20x forward P/E, close to the historical average over the last five years. At current price, the forecasted dividend yield is about 3.9%.
  • Meanwhile, we update our cost of equity assumptions and our DCF-based fair value estimate slips slightly from S$5.34 to S$5.23. With the limited upside potential, we downgrade our rating to HOLD.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-01-11
SGX Stock Analyst Report HOLD DOWNGRADE BUY 5.23 DOWN 5.340