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Simons Trading Research

Author: simonsg   |   Latest post: Fri, 13 Dec 2019, 4:31 PM

 

SATS - Temporary Travails

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1Q20 Missed Due to Many One-offs

  • SATS LTD. (SGX:S58)' 1Q20 reported PATMI of SGD54.7m missed our and consensus estimates by c12-15%. That said, most of the factors responsible for the miss are temporary in our view and should mend in coming quarters, and underlying core PATMI of SGD58.5 was just a shade below our expectation accounting for c22% of FY20E.
  • While Singapore fell, Japan and ASEAN ex-SG associates/JVs grew better than expected.
  • Our BUY and DCF-based Target Price (WACC 6.8%; TGR 2%) of SGD6.10 are unchanged.

Cargo, Jet Air and That Boeing Issue Mainly to Blame

  • The cargo market was soft affecting SATS gateway revenue growth which, nonetheless, managed to deliver a flat y-o-y performance, excluding the effect of GTR consolidation. Visibility on this market is expectedly low and dependent on the medium-term outcome of the US-China trade war. Other key factors responsible for the profit miss are more transient in nature we believe:
    1. the suspension of Jet Airways operations leading to loss of revenues and receivable write-downs; and
    2. the recent temporary suspension of Boeing’s 737 MAX aircraft.
  • In addition, 1Q20 also has upfront costs for starting operations at Beijing’s new Daxing International Airport later this year.

Japan and PT JAS on the Mend

  • TFK Japan posted 8% y-o-y revenue growth in the quarter and our outlook is for continued strength, driven by traffic growth leading up to the 2020 Tokyo Summer Olympics.
  • PT JAS, one of the key associate/JV profit contributors, also saw a recovery as the concession cost increases of three quarters ago are now beginning to get gradually priced-through.

Investments and Capex to Materially Ramp Up

  • At its Capital Markets Day in June, SATS guided for a three-recent years. It aims to:
    1. increase share in a consolidating APAC aviation catering and cargo market;
    2. become a leading central kitchen supplier in specific APAC markets; and
    3. develop a presence in travel retail.
  • Some of these gestation periods but the impact to medium-to-long c25-30% of SATS’ FY20E PATMI.

Our Key Comments From the Analyst Briefing Info

Jet Airways’ situation:

  • SATS’ revenue was impacted when the carrier operate around 9 flights/day for SATS services. Management stated up the freed landing slots at Changi Airport with Vistara and having secured a few.

737MAX situation:

  • The US FAA grounded two crashes. This led to many airlines having to cut aircraft. The market volume will eventually adjust back we believe, but this could take a few months more.

The ‘real’ 1Q20 core PATMI:

  • Our SGD58.5m core PATMI takes into account the one-off charges and losses but not the loss of business from Jet Airways and 737MAX groundings. SATS estimates this to be a into account all of these factors, if not for the above events, the ‘real’ core PATMI would have been flattish y-o-y for 1Q20 despite the weak trade-related cargo market.

Source: Maybank Kim Eng Research - 19 Jul 2019

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