SATS

Phillip Securities on Dec 28

SATS announced that they had won the bid to operate the new Singapore International Cruise Terminal (ICT) at Marina South, through a consortium formed with Creuers del Port de Barcelona SA.
The lease will be firm for 10 years with an option to renew for another five years. Operations are expected to commence in Q2 FY2012 by its newly formed 60:40 JV, SATS-Creuers Cruise Services Pte Ltd.
The current cruise terminal operated by the Singapore Cruise Centre has two berths and had been in operations since 1991. The new ICT would double the number of berths to tap on this growth in demand.
According to a news report by Channel News Asia in 2009, Singapore hopes that the new terminal would be able to host the largest Oasis-class cruise ships and attract 1.6 million cruise passengers by 2015.
Comparing that target to the passenger throughput disclosed for 2009, we estimate that Singapore's cruise industry is expected to grow its passenger throughput by 5.8 per cent per annum from 2009 to 2015. Singapore is also expected to play host to one of the largest cruise ships, Voyager of the Seas by Royal Caribbean, in May 2012.
We view this as a positive development for SATS, as it would enable the group to grow in the hospitality business and derive synergies with its current airport ground handling operations. SATS began to offer fly-cruise services in 2011 in collaboration with various stakeholders, including Star Cruises, Changi Airport Group and the Royal Caribbean International. With its existing partnership with Royal Caribbean, we believe that it is likely that the new consortium would play host to Voyager of the Seas next year.
In valuing the stock of SATS, we used a discounted cash-flow model to arrive at our TP of $2.96. We opine that investors should look beyond the expected decline in profits for FY12 and look ahead to significantly better performance in the following year. Maintain 'buy'.
BUY