SATS Limited: Commendable 3QFY10 results

By Kevin Tan
Fri, 5 Feb 2010, 09:23:15 SGT

SATS Limited turned in a strong set of 3QFY10 results yesterday. Revenue was up 79.2% YoY (+19.9% QoQ) to S$434.3m, beating our quarterly sales estimate, while PATMI was up 42.0% YoY (+30.6% QoQ) to S$53.4m, within our earnings expectation. In the coming 4Q, management expects to see YoY improvements in passenger and cargo loads, boosted by continual recovery in the sector. Margins from SFI are also expected to maintain at current levels as it benefits from lower cost by consolidating commodities at larger quantities, and as Daniels Group enters into another strong quarter. We believe SATS has still ample room for growth and yield improvements, both internally via synergies with SFI and externally amid an improving global outlook. We have raised our FY10F sales by 1.7% to accommodate the results into our full-year projections. While our DCF-based fair value falls slightly to S$3.27 (S$3.29 previously) as we project lower jobs credit incentive in 4Q, it represents an attractive 27.2% upside potential. Maintain BUY.

Strong set of results. SATS Limited turned in a strong set of 3QFY10 results yesterday. Revenue was up 79.2% YoY (+19.9% QoQ) to S$434.3m, beating our quarterly sales estimate, while PATMI was up 42.0% YoY (+30.6% QoQ) to S$53.4m, within our earnings expectation. The topline performance was mainly due to better-than-expected seasonally strong quarter from Daniels Group and recovery in the aviation industry. However, as staff costs grew faster than expected amid lower jobs credit benefit, earnings was thus in line. For 9MFY09, we note that the group delivered revenue of S$1,148.3m (+56.1%), forming 76.3% of our FY10 sales forecast (76.9% of consensus), and PATMI of S$134.7m (+28.9%), or 73.4% of our earnings figure (76.9% of consensus).

Operating performance by SFI. Over the quarter, SFI contributed S$199.6m to group revenue, which more than offset a 2.6% YoY decline in aviation revenue. For 9MFY10, sales from SFI totaled S$469.3m, representing ~41% of the group topline. Due to this significant contribution, SATS’ exposure to the cyclical aviation industry had also been reduced from 97.5% in 9MFY09 to 57.3%. In addition, SFI’s integration with SATS has made further progress, with ~S$6m (S$3.4m in 2QFY10) out of the S$10m synergies identified already realized on an annualized basis.

Positive outlook. Despite Mar quarter being the weakest for Singapore’s aviation sector traditionally, management expects to see YoY improvements in passenger and cargo loads, boosted by continual recovery in the sector. Margins from SFI are also expected to maintain at current levels as it benefits from lower cost by consolidating commodities at larger quantities, and as Daniels Group enters into another strong quarter. Pertaining to developments in the hospital sector, we also understand from SATS that it has set up a focus group for hospital catering (secured contract with NUH) and is in discussions with several hospitals for similar arrangements (market share currently in the teens, according to management).

Maintain BUY with S$3.27 fair value. We believe SATS has still ample room for growth and yield improvements, both internally via synergies with SFI and externally amid an improving global outlook. We have raised our FY10F sales by 1.7% to accommodate the results into our full-year projections. While our DCF-based fair value falls slightly to S$3.27 (S$3.29 previously) as we project lower jobs credit incentive in 4Q, it represents an attractive 27.2% upside potential. Maintain BUY.

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