SATS Ltd

OCBC on 26 Jul 2012

SATS Ltd’s (SATS) reported its 1QFY13 financial results that were in line with market expectations, with revenue and PATMI coming in respectively at 24% and 22% of consensus full-year estimates. SATS’ 1QFY13 revenue grew 14% to S$438m though PATMI fell 3% to S$41m. But if we exclude the discontinued operations and one-offs, SATS would have shown a 4% PATMI increase. Gateway services, In-flight catering and TFK revenues grew 8%, 16% and 41% YoY respectively; while non-aviation food revenue was flat YoY in 1QFY13. SATS’ staff costs, its largest expense, grew almost at the same pace as revenue growth after the group increased the workforce in its Gateway Services segment. Considering its strong revenue growth and increasing expenses, we maintain our ex-dividend fair value estimate of S$2.55/share and HOLD rating on SATS.

1QFY13 in line with consensus
SATS Ltd’s (SATS) reported its 1QFY13 financial results that were in line with market expectations, with revenue and PATMI coming in respectively at 24% and 22% of consensus full-year estimates. SATS’s 1QFY13 revenue grew 14% to S$438m though PATMI fell 3% to S$41m. However, if we exclude the discontinued operations and a write-back of retirement benefit plan obligations in 1QFY12, related to the pension restructuring at its Japanese subsidiary TFK Corporation, SATS would have shown a 4% PATMI increase in 1QFY13.

Strong organic growth
By our estimation, SATS in 1QFY13 recorded strong revenue growth for all its aviation-related segments. Gateway services, In-flight catering and TFK revenues grew 8%, 16% and 41% YoY respectively. The exceptional growth in TFK can be attributed to the Tokyo earthquake in Mar 2011, which greatly affected TFK’s operations in 1QFY12. Management shared that TFK’s current operating levels have not yet recovered back to pre-earthquake levels. This means TFK can continue growing, albeit at a slower pace. On a less positive note, SATS’s non-aviation food revenue was flat YoY in 1QFY13.

Staff costs increased strongly too
In 1QFY13, SATS’s staff costs, its largest expense, grew almost at the same pace as revenue growth. Management said the increase in staff costs was the result of the group increasing the workforce in its Gateway Services segment. More manpower is needed to support a new contract won in Hong Kong and an increased number of flights handled at Changi Airport. Separately, SATS is also in the process of merging Country Foods and Singapore Food Industries in order to achieve synergies and cost savings.

Maintain HOLD
Considering its strong revenue growth and increasing expenses, we maintain our ex-dividend fair value estimate of S$2.55/share and HOLD rating on SATS. And as a reminder, SATS’ FY12 final and special dividend of S$0.21/share goes ex-date on 31 Jul 2012.