InvestIdeas

Not vested. From Kim Eng:-

SATS FY2008 results (Gregory YAP, DID: 64321450)
Previous Day Closing price: $2.41
Recommendation: Buy (maintained)
Target price: $3.37 (maintained)

Below our expectations

Full year earnings of $194.9m (+9.3% YoY) are below our expectations of $209m, as associates did not perform as well as forecasted. Share of associate and JV profits fell 14% as higher costs were incurred by AAT in HK and BHS in Beijing with the opening of a second cargo terminal and Terminal 3, respectively.

Adjusted for after-tax exceptional items, such as a $15.5m gain from sale of ECC2 building, we estimate earnings were flat YoY (+1%).

Mixed performance among the segments

Revenue from Inflight Catering increased 5% to $430.9m (45% of total revenue). As unit meal volumes increased only 3.9%, this suggests SATS served higher value meals (eg lobster instead of prawns) to airlines using inflight meals in their competitive positioning.

Rates pressure and cessation of flights to Changi by five airlines and loss of three accounts caused Ground Handling revenue to slip 1% to $430.9m (45%).

Revenue from Security Services fell 5% to $47m (5%) following the cessation of a CAAS baggage screening contract.

Some growth expected, nothing fantastic

There are certainly no shortage of long term business drivers for SATS. It will definitely be a beneficiary of more Open Skies Agreements and STB’s target of attracting 17m annual visitors by 2015. In the most immediate term however, the opening of Changi Terminal 3 will be the clearest driver.

Further, management was optimistic associates’ will do better this year due to improvement plans and contributions from new JVs in India and Macau. However, higher operating costs (eg switch from counter rental from daily to hourly rate), a tight labour market and continued rates pressure from the third ground handling competitor could hold back growth.

We forecast a flattish curve in FY09 (+0.9% but 9.6% if ECC2 building sale gain is excluded from FY08 results).

But greater willingness to pay dividends makes up for it

Making up for the lack of growth however will be the commitment to raise dividend payout significantly in the absence of a capital investment need. For FY08, SATS declared a final ordinary dividend of 10 cents a share, up from 6 cents in FY07, marking a total payout of 77% vs 48.5% in FY07. Total dividend will therefore be 14 cents a share, just below FY07’s 15 cents which included a 5 cents special dividend.

Assuming a 75% payout again in FY09, forward yield is fairly attractive at 5.6%. Maintain BUY.

SATSvcs has an interesting chart formation.

Even before this week's rally, it has breakout of the cup and consolidated for the past 1-2 week or so. The kumo as a resistant is also present.

However, as we can see, it is also slowly moving out of the kumo's resistant level.

Will this breakout be a sign of something brewing or is it just a lucky shot with the funds injection into the banking system?

SATS ACQUIRES MENZIES AVIATION (HONG KONG)

http://info.sgx.com/webcoranncatth.nsf/ ... penelement

Key Points:

1. Acquire 100% for S$3.3m; based on net asset value cash-free, debt-free basis (<< positive!)

2. MAHK is one of the four ground handling agents at the Hong Kong International Airport
(HKIA). It is also one of the four licensed ramp handlers at HKIA, having recently extended its
franchise licence for another 10 years.

3. Key customers are Federal Express, Cebu Pacific, Air Canada, Orient Thai and Asiana Airlines.

November 3, 2008, 5.48 pm (Singapore time)

Sats' Q209 net profit falls 33.5%
By ANGELA TAN

Singapore Airport Terminal Services Limited (Sats) on Monday reported net profit for the second quarter ended September 30, 2008 fell 33.5 per cent to $32.4 million.

For the quarter, revenue rose to $249.2 million from $237.4 million a year ago.

For the six months period to end September, net profit was down 30.6 per cent to $66.9 million. Turnover was up 5 per cent at $493.2 million compared to last year's $469.9 million.

The group has a cash balance of $695.3 million as at 30 September 2008, an increase of $105.5 million compared to a year ago mainly from profits earned during the year.

Net cash provided by operating activities for the half year was $106.3 million, compared to $58.1 million a year ago. This was mainly due to a decrease of creditors of $40.1 million in the first half of FY2007/08 due to lower bonus provision.

Net cash used in financing activities for the half year was $107.2 million, compared to $68.6 million.The increase was mainly due to higher dividend paid in August 2008.

Looking ahead, SATS said the global economic downturn will likely dampen air traffic globally as well as at the Singapore Hub. It expects to see lower passenger traffic and cargo throughput in the second half of FY2008-09 compared to the corresponding period last year.

Contribution from associates remains below expectation, consequent on weaker market conditions.

However, the group said given the difficult environment, it expects more attractive opportunities like its recent purchase of Menzies Aviation (Hong Kong), to emerge.

It has declared an interim 4 cents a share dividend, unchanged from a year ago.

The interim dividend will be payable on 28 November 2008.

Source: Business Times Singapore

i am curious... appreciate loads to anyone who can enlighten me please...how does SATS make its money?

A bit of background. I don't follow this company closely cos' it does not fit the growth profile requirements. With economies on a downturn, I wouldn't expect their earnings to grow at a good clip in the near future.

Background
The company is the leading provider of integrated ground handling and inflight catering services at Singapore Changi Airport. Through joint ventures, SATS' network of ground handling and airline catering operations spans 15 airports in the Asia Pacific region. The company provides the following services to its airline clients: - Ground handling services, including: air freight handling services; passenger services; baggage handling services; and apron services; - Inflight catering services, including aircraft interior cleaning and cabin handling; - Aviation security services; - Airline laundry services; and - Air cargo delivery and management services. SATS has more than 50 years of experience in the business and was listed on the SGX Mainboard in May 2000.

tx MM for the above

in anticipation of an overall airline travel slowdown...SATS should suffer consequently...

i read recently...SQ is cutting back on a flight to x destination and will continue to stop flying to other destinations if it makes no economic sense to continue operating those routes...

if SQ can do this...so likely will CX, TG, JAL, CAL, etc...and SATS will have lesser clients over time...or at least lesser turnover business..

Published February 6, 2009

SATS profit for Q3 slips 25.4%
Tough operating environment and lower contributions from associates

By VEN SREENIVASAN

A TOUGH operating environment and falling contributions from overseas units contributed to a 25.4 per cent fall in the net profit of Singapore Airport Terminal Services (SATS) for the third quarter.

The Singapore Airlines 80 per cent-owned ground services subsidiary posted net profit attributable to equity-holders of $37.6 million for the three months ended December 2008, down from $50.4 million a year earlier. But the numbers were higher than Q2's $32.4 million.

Revenue for the October-December 2008 period slipped about 0.9 per cent to $242.4 million, from $244.5 million a year earlier.

For the nine months ended December 2008, the company's earnings fell 28.8 per cent to $104.5 million, from $146.8 million. Top-line revenue of $735.6 million was 3 per cent up from the previous year's $714.4 million.

Share of profits of associates fell by more than half to to $6.2 million during the third quarter, from 14.3 million a year ago. For the nine months, such contributions were down by half to $18.2 million, from some $39.3 million

Other adverse factors cited for the nine months include higher cost for Terminal 3 operations.

Chief executive Clement Woon said December monthly figures were worse than the previous months and predicted that the final quarter which began on January could see even more pressure on earnings and revenue.

'The fourth quarter has traditionally been the weakest,' he said, adding that the weak global economy and the challenging operating environment would impact revenue and earnings.

The decline in global air cargo has hit the company, with cargo/mail processed falling some 13 per cent in tonnage terms for the third quarter. Passengers handled fell 2.2 per cent for the quarter.

Revenue for inflight catering fell 3.4 per cent during the third quarter. Besides a fall in volumes, there was also a shift in demand for meals from premium class to economy class which would impact both revenue and yield.

Meanwhile, the depressed Chinese and Indian economies have impacted contributions from its subsidiaries in China, India and Hong Kong, where the units are facing demand deterioration and excess capacity.

But Mr Woon said that the Singapore operations remained relatively stable. This is despite the fact that the company will take 18 months to recover the cost of its investments at the new Terminal 3 at Changi.

Going forward, with the Singapore and global economies continuing to deteriorate and the airline industry in a cyclical dive, SATS is bracing for lower cargo throughput and passenger traffic. To handle the challenges, Mr Woon said his company would continue with capacity reduction and costs trimming.

On Jan 20, SATS successfully sought and received support from its independent shareholders to acquire 69.61 per cent of Singapore Food Industries (SFI) from Temasek Holdings for $334.5 million or 93 cents per SFI share. The purchase will be be completed by the end of Q4..

The move will trigger a general offer for all 157.1 million SFI shares, which could lift the total bill to $509 million. SATS says the purchase of the region's largest integrated food supplier will help it achieve sustainable growth powered by the twin engines of airport operations and food services.

Mr Woon also said talks were progressing well on SATS' bid to take over Swissport's customers from April this year. After struggling for three years, the Ferrovial group unit is pulling out of Singapore.

SATS had net cash of $698 million at end-December 2008. Net asset value per share was down at $1.24, while debt/equity ratio was 0.16.

SATS' stock closed a cent down at $1.31 yesterday.

Source: Business Times Singapore

Swine Flu not a problem anymore ?. Not vested. From DBS:-

DBS Research initiates cover on SATS with a target price of $3. Our analyst sees this stock as another beneficiary of the higher anticipated tourist arrivals once the 2 integrated resorts open.

In addition, airfreight and passenger travel have started to turn up. Earnings CAGR of 16% is projected, which is a sharp reversal from the –18% pre-exceptional EPS drop in FY09.

SINGAPORE AIRPORT TERMINAL SERVICES (SATS) - UBS raised its recommendation on Singapore Airport Terminal Services to "Buy" from "Neutral" and increased its target price to S$3.00 from S$2.85 previously.

- Singapore Airport Terminal Services reported on Thursday a 26 percent rise in its quarterly net profit to S$40.9 million.

Source: Reuters