SATS Ltd

Kim Eng on 7 Nov 2012

2Q in-line: TFK delivering, margins up p. SATS reported 1HFY3/13 PATMI of SGD91.6m, coming in at 46 6% and 49% of ours and consensus’ full-year estimates respectively y, with a seasonally stronger 3QFY3/13 still to come. 2QFY3/13 PATMI ffrom continuing operations of SGD50.3m was a 20% improvement YoY, underpinned by stronger margins all round (Fig 2) and TFK contiinuing its recovery post-Mar 2011 Japanese disasters. We leave our for recasts largely intact, and roll forward our valuation basis to 17x FY3/1 14 PER, Target Price raised accordingly to SGD3.22. Maintain BUY.

Cost control the key. Concerns were raissed during SATS’ 1QFY3/13 results regarding the ability to maintain marrgins in the face of rising cost pressures, and management’s sharpened focus on measures such as productivity improvements has delivered the desired results this 2Q. Although staff costs ex-TFK still rose 10.6 6% YoY to SGD156.7m, raw material costs actually dipped 2.3% YoY to SGD71.4m, the latter of
which was likely helped along by easing of soft commodity prices.

Operating statistics suggests steady ma arket share. SATS’ operating performance was largely in line with tho ose shown in Changi Airport Group’s own aviation traffic statistics. Th his suggests maintenance of market share for SATS in Singapore, wwhich is good news in the passenger segment, but also leaves an e exposure to a weak airfreight environment.

2Q that keeps naysayers at bay; Mainta ain BUY. SATS’ encouraging 2Q results, buoyed by improved margin ns, should lay to rest some concerns of an inability to maintain marg gins in the face of escalating costs. We continue to like SATS for its expposure to Singapore’s robust tourism industry, its strong balance ssheet and cash-generating business, which should continue to suppor rt attractive dividend yields of 6-7%p.a. For 1HFY3/13, an interim dividen nd of SG5cts/sh was declared as expected. We roll-forward our valuation ns to 17x FY3/14 PER, raise our Target Price to SGD3.22 and maintain our BUY recommendation.