Since the release of its 2QFY13 results, SATS Ltd (SATS) has rallied by more than 4% to reach peak levels this year. On a YTD basis, SATS is up almost 35% and is poised to close out the year at highs last seen in Jan 2011. For 2H13, we expect SATS to continue posting strong growth figures on the back of sustained increases in passenger and commercial flight movements in Changi Airport. Coupled with effective cost management, operating margin should remain stable. Incorporating the seasonal uplift in 3Q13, our fair value estimate increases from S$2.65 to S$2.70 whilst maintaining a P/E multiple of 15.5x. Although we maintain our HOLD rating, we highlight the possibility of a special dividend similar to last year on account of its healthy cash balance (S$325m as of end 2Q13).
Strong stock appreciation belies upbeat market outlook
Since the release of its 2QFY13 results, SATS Ltd (SATS) has rallied by more than 4% to reach peak levels this year. On a YTD basis, SATS is up almost 35% and is poised to close out the year at highs last seen in Jan 2011.
SATS to enjoy positive 2H13
As a recap, SATS’s aviation-related segments led revenue growth for the group in 1H13 with an 11.1% YoY improvement. This trend is likely to continue unabated in 2H13 with the following support factors: i) SATS’s dominant market share in Changi Airport will allow it to benefit from the sustained monthly YoY increases in passenger and commercial flight movements, ii) TFK’s stabilization following the recovery from last year’s natural disasters to remain top-line supportive, and iii) ongoing efforts to win new and extend existing contracts (recent big renewals include Singapore Airlines).
Weakness in Asia-Pacific notwithstanding
Although the Asia-Pacific region has experienced weaknesses stemming from slower economic growth in China and a persistent decline in overall cargo traffic for large parts of the year, SATS has been relatively unaffected. The growth in regional traffic and network enhancement by airlines – particularly in the low-cost carrier segment – has largely benefited SATS.
Effective cost management to continue
Despite incurring higher operating expenses due to headcount additions and workforce-related statutory fees, we do not foresee an erosion of operating margin in 2H13 with the group maintaining its emphasis on productivity enhancement and cost saving initiatives e.g. the procurement of raw materials directly from suppliers, reduction in wastage and better menu deployment.
Valuations raised; possibility of special dividend
Incorporating the seasonal uplift in 3Q13, our fair value estimate increases from S$2.65 to S$2.70 whilst maintaining a P/E multiple of 15.5x. Although we maintain our HOLD rating, we highlight the possibility of a special dividend similar to last year on account of its healthy cash balance (S$325m as of end 2Q13).
Since the release of its 2QFY13 results, SATS Ltd (SATS) has rallied by more than 4% to reach peak levels this year. On a YTD basis, SATS is up almost 35% and is poised to close out the year at highs last seen in Jan 2011.
SATS to enjoy positive 2H13
As a recap, SATS’s aviation-related segments led revenue growth for the group in 1H13 with an 11.1% YoY improvement. This trend is likely to continue unabated in 2H13 with the following support factors: i) SATS’s dominant market share in Changi Airport will allow it to benefit from the sustained monthly YoY increases in passenger and commercial flight movements, ii) TFK’s stabilization following the recovery from last year’s natural disasters to remain top-line supportive, and iii) ongoing efforts to win new and extend existing contracts (recent big renewals include Singapore Airlines).
Weakness in Asia-Pacific notwithstanding
Although the Asia-Pacific region has experienced weaknesses stemming from slower economic growth in China and a persistent decline in overall cargo traffic for large parts of the year, SATS has been relatively unaffected. The growth in regional traffic and network enhancement by airlines – particularly in the low-cost carrier segment – has largely benefited SATS.
Effective cost management to continue
Despite incurring higher operating expenses due to headcount additions and workforce-related statutory fees, we do not foresee an erosion of operating margin in 2H13 with the group maintaining its emphasis on productivity enhancement and cost saving initiatives e.g. the procurement of raw materials directly from suppliers, reduction in wastage and better menu deployment.
Valuations raised; possibility of special dividend
Incorporating the seasonal uplift in 3Q13, our fair value estimate increases from S$2.65 to S$2.70 whilst maintaining a P/E multiple of 15.5x. Although we maintain our HOLD rating, we highlight the possibility of a special dividend similar to last year on account of its healthy cash balance (S$325m as of end 2Q13).
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