SATS - OCBC Investment 2019-07-22: Soft Set Of Results

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

SATS - Soft Set Of Results

  • SATS 1QFY20 results missed expectations.
  • Flat core revenue.
  • Japan TFK to ride on 2020 Olympics.

PATMI missed; revenue was in-line

  • SATS LTD. (SGX:S58) 1QFY20 PATMI fell 14.4% y-o-y or S$9.2m to $54.7m, which formed ~20% of our full-year estimate. The decline was driven by lower operating margin and lower contribution from the share of results from associates and JV.
  • Revenue, however, grew by 5.8% y-o-y to S$465.1m which was broadly in-line, at ~24% of full-year forecast. The increase was driven by growth in both Food Solutions and Gateway Services, partially offset by lower cargo revenue, the suspension of the Jet Airways and also the grounding of the 737 MAX.

Growth was driven by the consolidation of GTR entities

  • Revenue from the Food Solutions was up S$1.9m or 0.8% y-o-y to S$241.4m, mainly attributable to the growth in core aviation catering subsidiaries in Japan and Singapore.
  • Gateway Services also saw a growth of S$23.7m or 11.9% y-o-y to S$223.3m, driven by the consolidation of GTR entities, Ground Team Red Holdings Sdn Bhd and Ground Team Red Sdn Bhd, which contributed $22.5m. Excluding the impact of the consolidation of GTR entities, 1QFY20 gateway services revenue and core revenue would remain relatively flat at S$200.8m (+0.6% y-o-y) and S$442.5m (0.7% y-o-y) respectively.

Lower operating margin

  • Operating margin was down 2.6% y-o-y to 12.2%, dragged by
    1. lower cargo revenue which tends to have relatively good margins and particularly strong operating leverage;
    2. the suspension of Jet Airway in India and
    3. higher expenses mainly due to the consolidation of GTR.
  • Group expenditure increased by S$33.8m or 9.0% y-o-y to S$408.3m, of which GTR accounted for 20.6% of the increase.

Lower Fair Value estimate of S$5.28

  • The slowing economy could continue to weigh on cargo revenue, and put pressure on cargo margin. Aviation passenger volumes in Asia, and the number of flights handled are still growing, though at a slower rate. Management sees this rising trend to continue despite the headwinds.
  • In addition, we expect the growth in Food Solutions to continue,

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-07-22
SGX Stock Analyst Report HOLD MAINTAIN HOLD 5.28 DOWN 5.350