SATS

UOBKayhian on 28 Apr 2014

FY14F PE (x): 18.4
FY15F PE (x): 17.1

Expecting weak underlying net profit, but strong cash generation should lead to a generous dividend payout. On a pre-exceptional basis, FY14 underlying net profit is likely to drop 6.0% yoy to S$189.7m. However, operating cash flow is likely to at least remain flat yoy (3QFY14: +20% yoy). We expect SATS to declare a final and special dividend of 10.5 cents (equivalent to a total payout of 90.8%). As a percentage of cash earnings (depreciation + net profit), this would amount to a manageable 64% payout. Maintain HOLD but we raise our target price by 9.6% to S$3.32. Reasons for the upward revision are: a) we roll forward our DDM valuation to FY15-17, and b) we raise our sustainable ROE to 14.6% from 13.5% (following M&A). At our fair value, the stock will offer FY15F dividend yield of 5.1%. Suggested entry price is S$3.10.