Acquires SCC. SATS announced the acquisition of Singapore Cruise Centre (SCC), operator of the international cruise terminal and regional ferry terminal at Harbourfront and two ferry terminals at Tanah Merah and Pasir Panjang, from Temasek Holdings for SGD110m. SCC have approximately 14 years left on its licence to operate these terminals. The acquisition is made through its subsidiaries SATS Airport Services (wholly owned) and SATS-Creuers Cruise Services (JV: SATS Airport Services owns 60%, Creuers owns 40%). SATS Airport Services and SATS-Creuers will directly own 92% and 8% respectively, with the latter having the option of increasing their stake in the future (see Figure 4).

Positive on strategic acquisition. We view this acquisition positively as it will increase SATS’s exposure to the structural growth in Singapore’s tourism traffic. Furthermore, this acquisition will allow SATS to aggressively launch their Fly-Cruise service offerings and benefit from the positive outlook for Singapore’s cruise industry with the Singapore Tourism Board expecting cruise passenger throughput of 1.5m by 2017 (2012: 0.91m). Upon completion of this acquisition, we expect SATS to derive synergies between SCC and both its cruise operations at Marina Bay Cruise Centre Singapore (MBCCS) and airport operations at Changi.

Earnings accretive, Reasonable valuation. SCC recorded FY13 sales and PBT of SGD45m and SGD16.7m respectively and is an earnings accretive acquisition to SATS. The acquisition valuation of SCC appears reasonable with PER of merely 7x. With management assigning no terminal value to SCC when its licence ends in Sep 2027, we believe long term valuation of this acquisition is conservative as well. Using its net cash position of SGD364m, SATS can comfortably fund this acquisition without cutting its dividend distribution.

Maintain Buy with unchanged TP of SGD4.05. This acquisition reinforces our positive view on SATS as a beneficiary of the long term tourism growth story in Singapore. Our DCF (WACC: 7.6%, terminal g: 1.0%) based TP of SGD4.05 presents upside of 29%. Furthermore, our expectations of incremental dividend payout implies market leading yield of 5.1 - 5.8% over the next 3 years. Maintain Buy.

Source: Maybank Kim Eng Research - 27 Sep 2013