SATS

UOBKayhian on 23 May 2014

FY14 PE (x): 19.4
FY15F PE (x): 17.5
SATS is attempting to improve operating leverage with greater automation and scale. In the interim, this will lead to higher capex. For FY15, we can expect higher scale from the opening of the Singapore Sports Hub and contribution from the recently-acquired PT CAS.

Results below expectation due to weaker revenue and associate income. 4QFY14 net profit was 22% below consensus and 18% below our forecast. Lower food solutions revenue accounted for most of the decline in 4QFY14 and FY14 earnings. SATS declared a final dividend of 8 cents/share, taking full-year payout to 80.4%.Food solutions impacted by withdrawal of Qantas and lower TFK revenue. Qantas tie-up with Emirates on European flights in Apr 13 had impacted SATS, leading to a 5.8% yoy decline in unit meals. TFK’s revenue declined 20% yoy due mainly to a 15% yoy decline in the yen. SATS did not provide a breakdown at operating level, but costs would have declined proportionately. Non-aviation food solutions revenue grew 6% yoy but there was little impact at operating level as operating profit for the segment declined 11% yoy.Maintain HOLD. We lower our target price from S$3.32 to S$3.12. We have cut our dividend payout assumption from 90% to 80% and also taken into account higher capex, going forward. At our fair value, the stock will offer a FY15 dividend yield of 4.5%. Suggested entry price is S$2.90.