Brokers' take: CGS-CIMB upgrades SATS to "add", Citi, DBS maintain "buy"

Vivienne Tay
Published Thu, Feb 14, 2019 · 10:22 AM

CGS-CIMB has upgraded SATS to "add", while Citi and DBS Group Research maintained at "buy".

For CGS-CIMB, which tweaked the target price to S$5.46 from S$4.98, this is due to more attractive valuations at c.18x CY20P/E, which is below average of c. 20x. Analyst Lim Siew Khee said earnings-accretive M&A is also a catalyst.

The move comes as SATS delivered a third consecutive year-on-year (y-o-y) revenue growth of 5.5 per cent in its third quarter which was better than expected. Moreover, third-quarter net profit was above forecast due to one-off gains recognised from DFASS SATS for the disposal of the business to KrisShop, a joint venture held by SIA (70 per cent), SATS (5 per cent) and DFASS (15 per cent).

"Singapore gateway was stronger, driven by market share increase as well as significant improvements in cruise centre," Ms Lim said. This comes as SATS announced a 3.5 per cent net profit growth to S$68.9 million which saw growth in food solutions and gateway solutions, along with higher contributions from associates and joint ventures.

On the revenue front, the ground handler and inflight catering services provider said its revenue for the third quarter ended Dec 31, 2018 grew 5.5 per cent to S$464 million. This was on the back of increased volume growth in food solutions, with growth across all its core catering subsidiaries in Singapore, Japan and China.

Citi said it continues to like SATS' defensive growth profiles, strong FCF generations and upside from its net-cash balance sheet, reiterating "buy" with S$6.00 target price as its Asean transport sector pick.

For DBS Group Research, which tweaked SATS' target price to S$5.59 from S$5.60, it said it remains positive that Changi and the region's aviation growth "will continue to drive long-term earnings growth for the stock", which continues to be supported by "decent dividend yield of 4 per cent".

DBS analysts Alfie Yeo and Andy Sim added that long-term growth drivers include passenger and air traffic growth at Changi Terminal 4, automation and staff productivity driving modest cost increases and better margins in the next few years, the opening of Terminal 5 by 2030 and a more positive outlook from TFK Japan.

Catalysts for the stock include a better outlook in Japan, the freeing up of financial resources from the Turkish Airlines MOU to pursue other deals and to pay out more dividends, and faster-than-expected ramp-up of Terminal 4.

SATS closed at S$5.08 on Thursday. 

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