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Broker's take: Maybank KE still positive on aviation services firms with SATS top pick
MAYBANK Kim Eng's outlook for Singapore's aviation services firms remains "positive", with SATS as its top pick, it said in its latest industry note on Monday.
The brokerage said the firms performed well despite facing headwinds from weak visitor arrivals for the first half of 2019, trade war related shrinking of air cargo volume, and the Hong Kong unrest.
Maybank Kim Eng made "buy" calls on SATS, Singapore Technologies Engineering (ST Engineering) and SIA Engineering, with a discounted cash flow-based target price of S$6.10, S$4.50, and S$3.00 respectively.
Singapore's aviation traffic statistics for the first nine months of the year saw passenger arrivals at Changi Airport up just 2.1 per cent year on year due to a poor first half.
This was after Chinese arrivals fell due to the slowing economy and yuan decline. Commercial flights also fell 0.9 per cent year on year, and cargo volume was down 6.4 per cent from the US-China trade war impact.
In spite of "lacklustre" growth, SIA Engineering and SATS gained some market share in line maintenance and cargo in the first half at Changi, said analyst Neel Sinha.
The brokerage is expecting cargo volumes to "bottom over" in the next few quarters. Singapore's hosting of biennial trade events in 2020 will also provide fuel to the year-to-date 2019 outperformance, Mr Sinha added.
This will also be "positive" for hotel occupancies, of which the brokerage has recommended a "buy" call for preferred stocks CDL Hospitality and Far East Hospitality with a target price of S$1.80 and S$0.80 respectively.
Currently, Singapore hosts some 150 to 160 international conferences annually – with 60 to 80 usually being conventions and trade shows which are deemed major sector events with over 500 delegates.
While majority are annual events, a few large ones are biennial and typically fall on even-numbered years – The Singapore Airshow being the most notable, along with others like the Global Smart Cities, environmental summits and the International Water Convention which are slated for 2020 too.
Barring travel disruption related occurrences such as SARS or bird flu, visitor growth during even years outpaced odd years by approximately 2 per cent over the past two decades.
As at 1.27pm on Tuesday, SATS shares were trading at S$5.01 on an ex-dividend basis, up one Singapore cent or 0.2 per cent. SIA Engineering was trading at S$2.84, down one cent or 0.4 per cent, while ST Engineering was trading at S$4.20, down three cents or 0.7 per cent.