• Exposure to regional aviation growth story.
• Riding the wave of international cruise passengers.
• Attractive dividend yield of 5.4%
• Re-initiate coverage with  Maintain "Accumulate", with  a revised TP of S$3.47 based on DCF (WACC: 6.0%, Terminal g: 0.5%).

Following a change of analyst, we re-initiate coverage on SATS Ltd.

What is the news?

• Release of 3QFY2013-14 Operating Statistics for Singapore Aviation Business
• Infrastructure works underway at Changi Airport to double existing passenger handling capacity to 135 million by mid-2020s. Construction of Terminal 4 has commenced and mixed-use complex Project Jewel announced.
• SATS pending acquisition of Singapore Cruise Centre (SCC).
• SATS expands into institutional catering with Sports Hub

How we view this

3Q  FY2013-14  Operating  Statistics  for  Singapore  Aviation  Business  –  Gateway operating metrics grew, inline with estimates, but gross and unit meals declined yy, mainly due to loss of Qantas’ flights on the Europe route.

Changi Airport  –  Being the dominant player at Changi Airport  we are positive on SATS  reaping  the  benefits  of  the  growth  in  passenger  traffic  at  Changi  Airport through both its Gateway services and Food solutions businesses.

Singapore Cruise Centre – SCC is a profitable and strong cash-generating business which will be immediately EPS accretive to SATS. Shareholders can look forward to a higher EPS. SATS will also be in a position to  promote  Singapore as a home-port for  cruise  operators,  with  potential  further  growth  in  revenue.   Though management expects cruise passenger throughput to grow above CAGR 6.5%, we have conservatively not baked this into our forecasts yet.

Sports Hub – Management expects S$50mn of revenue a year from catering.

Investment Actions

We  continue  to  be  positive  on  SATS  due  to:  (1)  Changi  Airport  maintaining  its position as the premier regional aviation-hub; with strong growth forecast in flight and  passenger  numbers,  (2)  Foothold  in  cruise  Gateway  services,  tapping  on growth in cruise passenger  throughput,  (3) Exclusive caterer at the Sports Hub,  (4) Attractive dividend yield of 5.4%.  We re-initiate coverage on SATS  and derive a  TP of S$3.47. We maintain our Accumulate rating.

Source: Phillip Securities Research - 5 Feb 2014