SATS’s 1Q14 results came in slightly under our expectations as revenue slipped 0.8% YoY to S$434.5m following declines in the food solutions segment and EBITDA fell 2.6% YoY to S$60.5m. Qantas’s move to Dubai and lower business volumes from TFK were the main culprits for this decline. Only with a write-back of prior-year’s tax provisions was the group able to record an 11.9% YoY improvement in PATMI to S$46.2m. For the coming quarters, we expect some softness in growth trends for passenger traffic and moderate our forecasts for the remainder of FY14 accordingly. While our fair value lowers to S$3.12 (S$3.15 previously) – suggesting limited upside at this juncture – we expect SATS’s defensive qualities i.e. earnings stability and healthy dividend attractiveness to provide some support for its share price. Maintain HOLD.
1Q14 results fall a little short of expectations
SATS’s 1Q14 results came in slightly under our expectations as revenue slipped 0.8% YoY to S$434.5m following declines in the food solutions segment. EBITDA also fell 2.6% YoY to S$60.5m as a result of higher staff costs (from bonus and performance payouts) and lower depreciation. Only with a write-back of prior-year’s tax provisions was the group able to record an 11.9% YoY improvement in PATMI to S$46.2m.
Qantas withdrawal and TFK declines to blame
SATS was hurt by Qantas’s move to Dubai from Changi Airport, which resulted in a drop in gross and unit meals produced during the quarter (-7.9% YoY and -6.6% YoY). The move saw an overall reduction of 50-plus flights weekly on the Kangaroo route. In addition, a combination of seasonality factors and demand drop-offs from TFK saw top-line contribution from Japan dropped 4ppt over a year ago to 12.6%.
FY14 growth could moderate
Previously, we had expected the sustained growth of Intra-Asia passenger traffic to provide a conducive environment for the group in FY14. However, recent data from Changi Airport suggests a slight moderation in that growth trend. For the quarter ending Jun 2013, passenger movements only grew 3.9% YoY, which was the lowest since 2011. Furthermore, quarterly air freight movements remained weak with the fifth straight YoY decline.
Some weakness ahead; lower fair value
While we believe that management will continue to manage costs through productivity and automation initiatives, we temper our growth forecasts for the remaining quarters accordingly to reflect the recent uncertainty emanating from China and SEA. Nonetheless, new route additions and network expansion from airlines and the counter’s earnings stability and healthy dividends should provide some support for the share price in the interim. Maintain HOLD with a slightly lower fair value estimate of S$3.10 (S$3.15 previously).
SATS’s 1Q14 results came in slightly under our expectations as revenue slipped 0.8% YoY to S$434.5m following declines in the food solutions segment. EBITDA also fell 2.6% YoY to S$60.5m as a result of higher staff costs (from bonus and performance payouts) and lower depreciation. Only with a write-back of prior-year’s tax provisions was the group able to record an 11.9% YoY improvement in PATMI to S$46.2m.
Qantas withdrawal and TFK declines to blame
SATS was hurt by Qantas’s move to Dubai from Changi Airport, which resulted in a drop in gross and unit meals produced during the quarter (-7.9% YoY and -6.6% YoY). The move saw an overall reduction of 50-plus flights weekly on the Kangaroo route. In addition, a combination of seasonality factors and demand drop-offs from TFK saw top-line contribution from Japan dropped 4ppt over a year ago to 12.6%.
FY14 growth could moderate
Previously, we had expected the sustained growth of Intra-Asia passenger traffic to provide a conducive environment for the group in FY14. However, recent data from Changi Airport suggests a slight moderation in that growth trend. For the quarter ending Jun 2013, passenger movements only grew 3.9% YoY, which was the lowest since 2011. Furthermore, quarterly air freight movements remained weak with the fifth straight YoY decline.
Some weakness ahead; lower fair value
While we believe that management will continue to manage costs through productivity and automation initiatives, we temper our growth forecasts for the remaining quarters accordingly to reflect the recent uncertainty emanating from China and SEA. Nonetheless, new route additions and network expansion from airlines and the counter’s earnings stability and healthy dividends should provide some support for the share price in the interim. Maintain HOLD with a slightly lower fair value estimate of S$3.10 (S$3.15 previously).
No comments:
Post a Comment