Brokers' take

Sats | HOLD

Feb 5 close: S$3.02

Target price: S$3.11

UOB Kay Hian Research, Feb 5

Q3 FY15 was a good quarter as Sats achieved cost efficiency. However, there is a theoretical limit to that. The reduction in operating expenditure was the key earnings driver and Sats achieved this by reducing staff costs (-1.2 per cent), lower raw material costs (-13 per cent), along with productivity initiatives undertaken in previous periods. Sats, however, said that Q4 FY15's staff cost is likely to rise quarter-on-quarter.

Bulk of the contribtion came from gateway services segment but food solutions saw greater improvement. The steep increase in dividend payout was attributed to excess cash from the associates.

We are inputing greater food solutions revenue for FY16 and FY17 as SIA will roll out its premium economy fares, which will see the provision of higher value-added meals. We have also assumed incremental throughput and unit meals with the implementation of Asean Open Skies in 2016.

There is a theoretical limit to cost cuts and the recent strength of the Singapore dollar could impact raw material costs in coming quarters. However, the cost cuts highlight management's resolve in maintaining margins. We maintain our "hold" recommendation but raise our target price by 5.8 per cent to S$3.11.

Singapore Post | BUY

Feb 5 close: S$2.01

Target price: S$2.19

OCBC Investment Research, Feb 5

MAIL revenue fell 2.3 per cent year-on-year, due to lower contributions from domestic and international mail; this despite a postage rate hike from October last year.

In the quarter, domestic mail revenue fell 1.7 per cent year-on-year while international mail revenue declined 2.7 per cent as the transshipment business becomes increasingly competitive with more commercial operators in the region. In the face of such competition, the group decided not to sacrifice margins for the sake of revenue.

Looking ahead, the group plans to continue exploring investment opportunities in Asia Pacific as part of its growth strategy. However, details are scarce for now as the group has so far only appointed consultants to advise on such redevelopment. Rolling forward our valuations, our fair value estimate rises slightly from S$2.17 to S$2.19.

Compiled by Chan Yi Wen

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Brokers who wish to send in their reports can e-mail us at btnews@sph.com.sg