The positives
The negatives
Outlook
The outlook remains stable to positive. We see credible earnings growth as SATS continues to make investments in associates/JVs. In our previous report, we mentioned the possibility of airlines divesting non-core businesses such as catering and ground handling. SATS has announced partnerships with AirAsia and Turkish Airlines (see overleaf). We view this positively, as they give SATS exposure to markets far larger than the domestic volumes at Changi Airport.
Upgrade to Accumulate (from Neutral); higher target price of $5.23 (previously $5.08)
We incorporate 1H18 results into our FY18e estimates and raise our outlook assumptions for associates/JVs by 12% to 17%. Our target price gives an implied FY18e forward P/E multiple of 23.2x, and forward P/E multiple of 21.7x FY19e earnings. We like the stock for its regional expansion story. SATS is building partnerships today outside of Singapore, that will bear fruit in later years.
Key Takeaways
Management shared some insights to the recent two announcements of overseas ventures with airlines.
Formation of Gateway Services JV with AirAsia
Memorandum of agreement (MOA) with Turkish Airlines (THY) for Food Solutions JV at Istanbul New Airport
Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.
He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.