SATS

UOBKayhian on 30 Oct 2013

(SATS/HOLD/S$3.45/Target: S$3.32)
FY14F PE (x): 19.0
FY15F PE (x): 17.6

Expecting flat 2QFY14 revenue. We forecast food solutions revenue to decline 3% yoy on a 4% yoy decline in unit meals served. However, revenue from gateway services is expected to rise 7% yoy on the back of
higher unit services.

Maintain HOLD and target price of S$3.32. SATS is currently trading at 18.6x FY14 PE, close to +2SD PE at 19.5x. Given the relatively lofty valuation, we would prefer to buy near +1SD at S$3.10. We still like SATS for its stable cash flows and the potential of a cargo jv in Oman. Our valuation is based on a dividend discount model (required return: 7.0%, terminal growth 1.5%). At our fair value, the stock offers a dividend yield of 4.9%.