SATS Ltd - OCBC Investment 2019-05-17: Investing For Growth

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SATS LTD. (SGX:S58)

SATS Ltd - Investing For Growth

• 5% fall in SATS FY19 net profit.
• Acquires 50% stake in China food company.
• 5+5 year master contract with SIA.

FY19 results in line

• SATS LTD. (SGX:S58) reported an 11.3% y-o-y rise in revenue but saw a 23.7% fall in net profit to S$49.9m in 4QFY19, mainly due to a 62.9% fall in share of associates and JVs. This brought full year net profit to S$248.4m, which was a 5.0% fall from a year ago. Excluding one-off items, reported core earnings grew 2.2% to S$241.4m for FY19, which was within our expectations.
• For the full year, Food Solutions saw a 4.4% increase in revenue while Gateway Services reported a 7.9% growth.
• Free cash flow remained healthy.

Growing in China

• SATS also announced that it will buy 50% of China food company, Nanjing Weizhou Airline Food Company (NWAFC). SATS’ subsidiary will acquire a 45% stake in NWAFC for about S$25.5m and another 5% through the subscription of new shares for about S$5.7m.
• Founded in 2001, Nanjing Weizhou Airline Food Company is a major producer of frozen food, ambient meals and food components to aviation companies.
• The acquisition will enable SATS to tap on NWAFC’s frozen food development and production capabilities and provide it with access to strong aviation customers to grow and strengthen SATS’ position in the Chinese aviation market outside of its existing locations at Beijing, Daxing, Tianjin and Shenyang airports.

Renewal of suite of services with SIA

• SINGAPORE AIRLINES LTD (SIA, SGX:C6L) and SATS also recently announced their commitment to strengthen Singapore’s hub competitiveness with the renewal of a suite of aviation services contracts for the next five years. Commencing in Apr 2019, the SIA and SilkAir contracts have a five-year tenure with an option to extend for a further five years, encompassing inflight catering and cabin handling, passenger and ramp handling, cargo handling, aircraft interior cleaning, aviation security and laundry services. The new contract will also include the provision of aviation security services for Scoot.
• Meanwhile, SATS has declared a final dividend of S$0.13/share, bringing the full year dividend to S$0.19/share, compared to S$0.18/share last year. See SATS' dividend history.
• We roll forward our estimates and our fair value rises slightly from S$5.23 to S$5.35.
• Maintain HOLD.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-05-17

SGX Stock Analyst Report HOLD MAINTAIN HOLD 5.35 UP 5.230