SATS

UOBKayhian on 12 May 2015

Aviation Support Service- SATS likely to outperform, and we estimate a 25% rise in final dividend. Maintain UNDERWEIGHT. SATS expecting marginal increase in 4QFY15 net profit and good dividend payout. Operationally, we expect lower revenue due to a 7.4% decline in unit services. However, margins for gateway services is likely to improve due to lower pax handled at Changi and higher cargo handled. As such, we estimate a 5% improvement in operating profit and a 2.3% profit. Our 4QFY15 net profit is 4% higher than consensus. We also estimate that SATS’ final payout will be 10 S cents (8 S cents previously) as the company generated some $70m from the disposal of an associate and higher dividend payout from associates as at 9MFY15. SATS is now our top pick. We like SATS for its stable cash flow and diversified operations. SATS is also progressively reviewing its portfolio, disposing of assets and forming JVs to generate better efficiency. These measures are likely to be accretive over the long run. At current levels, SATS offers a trailing dividend yield of approximately 4.7%, which compares favourably with other high-yielding dividend yield stocks, with an added attraction of SATS having minimal debt.