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Broker's take: OCBC downgrades SATS to 'hold'

OCBC Investment Research has downgraded its rating on SATS from "buy" to "hold" with a fair value estimate of S$5.23 from S$5.34 previously, on the back of limited upside following the counter's recent price appreciation. 

With the addition of a S$0.19 dividend forecast, OCBC's full-year estimate represents a 10 per cent upside to the counter's closing price of S$4.94 on Jan 10. The stock has risen 7.6 per cent over the last five trading sessions, and OCBC sees diminishing upside in the near term at the current levels. 

Nonetheless, the brokerage also noted that there has been some growth in Changi Airport's operating statistics, which might bode well for SATS in the long run. Traffic growth at Changi Airport has a direct impact on SATS, as OCBC expects the group to handle about 80 per cent of the traffic throughput there.

In the longer term, the addition of Terminal 5 - with construction to begin in 2020 - will also benefit SATS since it is the dominant ground handling provider at Changi Airport, OCBC said. 

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Changi Airport posted mixed operating statistics for November 2018, as passenger throughput grew 4.5 per cent year on year (y-o-y), aircraft movements fell 1.3 per cent, and air freight movements rose 2.5 per cent.

From January to Novemeber last year, y-o-y growth for passenger throughput was 5.6 per cent, 1.9 per cent for aircraft movements and 3.6 per cent for air freight movements.

"In general, these growth figures were weaker compared to the growth that we saw in January to November 2017 versus 2016," OCBC said. 

Trade tensions and weaker sentiment have also impacted emerging market currencies and trade volumes, OCBC added.

While lower oil prices is a near-term reprieve, competition in the airline industry may continue to result in pricing pressures for SATS, the brokerage explained. 

SATS is trading at 20 times forward P/E (price equity ratio), close to the historical average over the last five years. At the current price, the forecasted dividend yield is about 3.9 per cent, OCBC said. 

As at 10.33am on Friday, SATS shares were trading up 0.2 per cent, or one Singapore cent to S$4.95 apiece.