Premium economy from SQ will start to contribute ... Figure 5: Food solutions associates up thanks to flight kitchen in
Airports│Singapore May 14, 2015
4QFY15 RESULTS NOTE
SATS Ltd SATS SP / SATS.SI
Market Cap
Avg Daily Turnover
Free Float
US$2,691m
US$3.70m
56.0%
S$3,545m
S$5.02m
1,114 m shares
Current
S$3.21
Target
S$3.42
Prev. Target Up/Downside
S$3.31 6.5% Conviction|
|
Every cent counts
CIMB Analyst(s)
—————————————————————————————————————————
LIM Siew Khee T (65) 6210 8664 E
[email protected]
Share price info Share price perf. (%)
1M
3M
12M
Relative
3.5
4.7
-6.0
Absolute
1.6
5.6
0.0
Major shareholders
Cargo cushioned TFK; better food quality ahead
% held
Temasek Holdings
At 103% of FY3/15F, SATS’s net profit of S$196m (+8.5% yoy) was in line with our forecast and consensus. FY15 EBIT margin rose to 10.2% vs. 9.6% in FY14, thanks to gradual cost savings from productivity yield as well as lower oil and power prices. 4Q15 EBIT margin of 10.5% (3Q15: 11.3%) would have been stronger if not for the “several million dollars” in restructuring costs at TFK. We believe lower oil prices could cause airlines to spend more on food quality and refocus on premium travel. Our FY16-17 EPS rises by 1-2% on higher margins. We raise our target price, still based on 17x CY16 P/E (5-year mean). It declared a final DPS of 9Scts (total DPS: 14Scts) with an unchanged 80% payout. Catalysts include stronger margins and Changi traffic. Maintain Add.
44.0
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Stronger 4Q15 gateway revenue of S$173m (+4% yoy) cushioned the weakness in food solutions revenue of S$215m (-6% yoy), which was affected by TFK. Gateway revenue was up on higher cargo volume thanks to SATS’s increased market share in Changi as well as the general positive cargo industry – the persisting West Coast port congestion in the US turned more ocean freight to air cargo in the trans-Pacific route. We forecast FY16 revenue to rise 2.6% yoy, expecting higher traffic at Changi Airport as more incentives are rolled out to attract airlines and passengers. Unit meal was up 2% qoq in 4Q15 as airlines refocused on premium travellers and food quality.
Lean operation While revenue dipped by 2% yoy, total expenditure fell 3.2% yoy to S$1.58bn. “Other costs”, which formed 10% of total expenditure, fell 9% yoy. Staff costs (51% of total expenditure) grew minimally by 1.5% yoy. Total staff strength shrank by 3.7% yoy to 13,995 mainly from natural attrition. Management does not expect aggressive re-hiring in the event of a 5% rebound in overall volume as the current staff strength is able support the growth with the help of automated processes, especially in food solutions. Also, it does not plan to exit from TFK, but we believe the restructuring exercise carried out in 4Q15 could help to improve the performance from FY16.
Strong cash from associates SATS’s net cash rose 25% yoy to S$306m, mainly due to a dividend payment of S$88m from associates as less capital was required for new development. Results comparison FYE Mar (S$ m) Revenue Operating costs EBITDA EBITDA margin (%) Depn & amort. EBIT Interest expense Interest & invt inc Associates' contrib Exceptionals Pretax profit Tax Tax rate (%) Minority interests Net profit ex. Daniels Core net profit Net profit EPS (S cts) Core EPS (S cts)
4Q FY15 425.1
4Q FY14 434.6
yoy % chg (2.2)
qoq % chg (2.3)
4QFY15 cum 1,753.2
4QFY14 cum 1,786.7
yoy % chg (1.9)
(364.1)
(374.0)
(2.6)
(4.0)
(1,508.6)
(1,539.4)
(2.0)
61.0 14.3 (17.3) 43.7 (0.2) 1.3 13.1 0.0 57.9 (8.9) 15.4 2.6 51.6 51.6 51.6 4.7 4.7
60.6 13.9 (19.1) 41.5 (1.0) 1.4 9.9 (0.8) 51.0 (7.8) 15.3 (0.6) 42.6 43.4 42.6 3.8 3.9
0.7
9.3 2.4 12.3 (50.0) 550.0 26.0
13.5 14.1
18.2 32.8
533.3 21.1 18.9 21.1 22.9 20.3
160.0 19.2 18.9 19.2 20.9 20.6
247.3 13.8 (77.2) 170.1 (2.9) 1.1 47.2 0.0 215.5 (33.4) 15.5 (1.7) 180.4 180.4 180.4 16.2 16.4
(1.1)
(9.4) 5.3 (80.0) (7.1) 32.3
244.6 14.0 (68.2) 176.4 (1.2) 1.6 48.1 (0.1) 224.8 (34.1) 15.2 5.0 195.7 195.8 195.7 17.6 17.6
(11.7) 3.7 (58.6) 45.5 1.9 4.3 2.1 394.1 8.5 8.5 8.5 8.8 7.3
Prev. Comments FY15F 1,813.7 Cargo helped to support gateway revenue; TFK weakness drags food solutions revenue (1,591.4) In line, lower "Other costs" which include fuel and utilities. Staff cost increment kept at 1.5% yoy 298.6 15.8 (91.2) Below 192.3 (2.9) Below, refinancing of foreign currency loan 2.4 Below 49.6 In line 227.3 (36.4) 16.0 (1.8) 189.1 189.1 189.1 17.0 17.0
In line Below Over provision of prior tax S$2.7m In line, FY15 at 103% of our FY15 forecasts
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA
SATS Ltd│Singapore May 14, 2015
Price Close
Financial Summary
Relative to FSSTI (RHS)
3.300
103.0
3.200
99.4
3.100
95.8
3.000
92.2
2.900
88.6
2.800 8
85.0
6
Vol m
4 2 May-14
Aug-14
Nov-14
Feb-15
Source: Bloomberg
52-week share price range 3.21 3.23
2.85
3.42 Current
Target
Mar-14A 1,787 248.0 180.4 0.16 (2.55%) 20.40 0.13 4.05% 13.89 39.10 (15.0%) 2.52 12.8%
Revenue (S$m) Operating EBITDA (S$m) Net Profit (S$m) Core EPS (S$) Core EPS Growth FD Core P/E (x) DPS (S$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Core EPS Estimates CIMB/consensus EPS (x)
Mar-15A 1,753 246.2 195.7 0.18 9.80% 18.58 0.14 4.38% 13.59 13.40 (20.1%) 2.48 13.8%
Mar-16F 1,800 277.3 214.2 0.19 8.39% 17.14 0.15 4.79% 11.95 19.29 (21.5%) 2.39 14.6% 1.49% 1.06
Mar-17F 1,875 301.8 231.6 0.21 8.13% 15.85 0.17 5.18% 10.93 19.67 (21.6%) 2.29 15.2% 2.13% 1.09
Mar-18F 1,967 322.7 247.0 0.22 6.64% 14.86 0.18 5.53% 10.18 17.99 (21.9%) 2.21 15.5%
SOURCE: CIMB, COMPANY REPORTS
Meat distribution and processing JV with BRF SATS recently announced that its non-aviation subsidiary, Singapore Food Industries (SFI) has entered into a JV agreement with BRF to set up SATS BRF Food to process meat and manufacture branded food products for retailers, restaurants, wholesalers, distributors and ship chandlers. SFI will hold a 51% stake while BRF will hold 49% in the S$48m JV company. SFI will transfer its food distribution business (
