SATS’s 3Q13 results fell short of our expectations following weaker top and bottom-line growth. Higher operating expenses resulted in operating margin stagnating at 9.9%, and the seasonal peak in quarterly performance failed to materialise with PATMI coming in at 23.0% YoY higher (-6.6% QoQ) to S$47.0m. While SATS will likely see out FY13 on a positive note, operating margins could deteriorate further should staff costs rise further and airlines cut back on food solution budgets. In terms of valuations, SATS has had an amazing run and valuations appear stretched at the moment. Even after raising our peg to 16.5x 12-month forward PE (from 15.5x), to incorporate the possibility of a special dividend – our fair value moves to S$2.80 (from S$2.70 previously). As such, we maintain our HOLD rating in anticipation of some profit-taking.
3Q13 results disappoint slightly
SATS’s 3Q13 results – whilst showing YoY improvements – fell short of our expectations following weaker top and bottom-line growth. Revenue increased 6.4% YoY (+2.0% QoQ) to S$470.6m to reflect the impact of peak season travel months but higher operating expenses (mainly related to staff expenses and raw material costs) saw operating margin stay at 9.9% (-1.4 ppt from 2Q13). As a result, the seasonal peak in quarterly performance failed to materialise, and PATMI came in at 23.0% YoY higher (-6.6% QoQ) to S$47.0m.
Singapore was the key performance driver
In terms of geographical locations, Singapore led revenue growth for the quarter with a 7.7% YoY increase to S$353.9m. This was due to SATS’s dominant market share of the local market, which allowed it to participate substantially in the increase in passenger and aircraft movements at Changi Airport.
Opex manageable but client needs supersede
Although SATS’s gateway services and foods solutions saw revenue improvements, cost cutting measures by airlines and lower costs of raw materials resulted in a stagnation of its operating margin. In our view, this occurrence is indicative of the need for prudence amongst airlines – given their increasingly competitive landscape – rather than operational inefficiency on the part of SATS.
Outlook still promising
As stated back in 2Q13, we maintain our assertion that SATS will see out FY13 on a positive note. Its main revenue base of Singapore will continue to benefit from sustained increases in passenger and commercial flight movements while its overseas subsidiaries (i.e. TFK) continue to provide stable results.
But valuations a little stretched
SATS is now trading at close to 18x its 12-month forward P/E, and valuations at this juncture appear stretched. Even after raising our peg to 16.5x 12-month forward PE (from 15.5x), our fair value moves to S$2.80 (from S$2.70 previously). As such, we maintain our HOLD rating in anticipation of some profit-taking.
SATS’s 3Q13 results – whilst showing YoY improvements – fell short of our expectations following weaker top and bottom-line growth. Revenue increased 6.4% YoY (+2.0% QoQ) to S$470.6m to reflect the impact of peak season travel months but higher operating expenses (mainly related to staff expenses and raw material costs) saw operating margin stay at 9.9% (-1.4 ppt from 2Q13). As a result, the seasonal peak in quarterly performance failed to materialise, and PATMI came in at 23.0% YoY higher (-6.6% QoQ) to S$47.0m.
Singapore was the key performance driver
In terms of geographical locations, Singapore led revenue growth for the quarter with a 7.7% YoY increase to S$353.9m. This was due to SATS’s dominant market share of the local market, which allowed it to participate substantially in the increase in passenger and aircraft movements at Changi Airport.
Opex manageable but client needs supersede
Although SATS’s gateway services and foods solutions saw revenue improvements, cost cutting measures by airlines and lower costs of raw materials resulted in a stagnation of its operating margin. In our view, this occurrence is indicative of the need for prudence amongst airlines – given their increasingly competitive landscape – rather than operational inefficiency on the part of SATS.
Outlook still promising
As stated back in 2Q13, we maintain our assertion that SATS will see out FY13 on a positive note. Its main revenue base of Singapore will continue to benefit from sustained increases in passenger and commercial flight movements while its overseas subsidiaries (i.e. TFK) continue to provide stable results.
But valuations a little stretched
SATS is now trading at close to 18x its 12-month forward P/E, and valuations at this juncture appear stretched. Even after raising our peg to 16.5x 12-month forward PE (from 15.5x), our fair value moves to S$2.80 (from S$2.70 previously). As such, we maintain our HOLD rating in anticipation of some profit-taking.
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