SATS

Kim Eng on 15 May 2012

Good results, bumper dividend. SATS reported FY12 results that were in line with expectations at SGD 171 mil. As a more meaningful comparison, its 4Q12 Net Profit from continuing operations of SGD 48 mil was flat YoY, while on a full-year basis, profit declined marginally by 4% to SGD 178 mil, which was a creditable performance against the year’s challenging operating environment. Bumper dividends were also declared (final plus special) of SG 21 cts/sh, as a disbursement from their sale of the Daniels group. Together with the interim dividend of SG 5 cts/sh, total dividend yield of 10% is rather attractive.

The worst seemingly over in Japan. TFK has seemingly turned a corner after the Japanese earthquake disaster in Mar 2011 which severely affected its operations. TFK has shown 4 consecutive quarters of improvement since then, culminating in a turnaround from an SGD 1.6 mil loss in FY11 to a SGD 0.3 mil profit in FY12. Also, from a geographical standpoint, Figure 1 shows the increased contribution from Japan to Group revenue. We expect further recovery in TFK’s performance as a key growth driver for the Group going forward.

Bumper dividends to be the norm? SATS has historically been sitting on a healthy net cash position. Figure 2 shows that SATS has a 5-year ordinary dividend payout ratio of 70%. We think that based on its strong cashflow and large net cash position, there is justification for a payout ratio closer to 100%, which would still leave sufficient cash for potential acquisitions in the non-aviation-related space.

On solid ground, Maintain BUY. SATS continues to remain a company with solid fundamentals, with growth drivers largely intact. We believe that its resilient earnings amidst a volatile economic climate and possibly higher dividend payouts justify a valuation upgrade to 17x FY13 PER, based on 1 standard deviation above its mean. Maintain BUY, with target price increased to $3.04.