SATS Ltd

SATS Ltd | Hold

Fair value: S$5.50

May 31 close: S$5.16

OCBC Investment Research, May 31

SATS' FY18 revenue fell 0.3 per cent to S$1.72 billion mainly attributable to a 2.7 per cent decline in Food Solutions (FS) segment due to weaker TFK Corp's performance, mitigated by a 2.9 per cent growth in Gateway Services (GS) segment driven by stronger cargo tonnage and more flights handled.

Stripping out one-off items, FY18 core PATMI (profit after tax and minority interests) missed our expectations as it grew 0.8 per cent to S$236.1 million, but only formed 94.6 per cent of our forecast. Working with a high operating leverage, gaining scale is crucial and SATS' strategy ahead is to build up its network and connectivity with a focus in Asia.

Beyond these, a potential catalyst would be the potential partnership with Turkish Airlines to provide inflight catering services at Istanbul New Airport.

We expect SATS to continue to invest to expand its network of 60 airports through more partnerships, with management noting the use of leverage over time, but will manage net gearing below 30 per cent.

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