• SATS will not be proceeding with the acquisition of Singapore Cruise Centre (SCC).
• Mutually agreed between Purchasers and Vendor to terminate the Sale and Purchase Agreement.
• We revise existing TP downwards after stripping out previously forecasted contribution from SCC, to arrive at new TP of S$3.37 (subject to change again when SATS announces Full Year FY2014 financial results the following week on 22 May).

What is the news?

SATS made an announcement on 12 May after market hours that the Purchasers (SATS' subsidiaries, SATS Airport Services Pte. Ltd. and SATS-Creuers Services Pte. Ltd.) and the Vendor (Hazeltree Holdings Pte. Ltd.) have agreed to terminate the Sale and Purchase Agreement for the proposed acquisition of SCC. The decision was made after consideration of cruise line market developments in Asia. SATS will continue to focus on the successful operations at Marina Bay Cruise Centre (MBCCS).

How do we view this

We spoke to SATS Management to gain clarity over market developments in Asia, and were told that there is a trend for bigger ships to ply the routes and berth in Singapore; and that the existing HarbourFront Terminal is not able to accommodate the larger ships due to height restrictions imposed by the cable car line.

This is a positive development for MBCCS as there is no height restriction imposed there and all the large ships would berth there, benefiting SATS which is already the terminal operator at MBCCS through its 60:40 SATSCreuers JV.

With such a trend of larger ships, SATS would likely not be able to realise the returns that was previously envisaged through the investment in SCC. The fixed costs and probable under-utilisation associated with SCC would result in a drag on the overall financial performance of SATS.

Investment Actions

We strip out future contributions from SCC and reverse FY15F cash investment outlay from our previous forecast; and revise our TP downwards to S$3.37 (Accumulate). At the same time, we highlight that SATS will be announcing its Full Year FY2014 results the following week on 22 May, and TP is subject to change.

Source: Phillip Securities Research - 14 May 2014