SATS Limited (SATS) rounded off its FY15 with a decent set of 4QFY15 results. Even though 4QFY15 revenue declined 2.2% YoY to S$425.1m, its core PATMI rose 18.6% to S$51.6m on the back of a 3.2% reduction in operating expenses to S$380.4m, and a 32.3% jump in share of after-tax profits from overseas associates and JV to s$13.1m.

For FY15, its core PATMI, which formed 103% of our forecast, was slightly above expectations, as it came in 7.0% higher at S$195.9m while revenue declined 1.9% to S$1753.2m. FY15 Food Solutions (FS) revenue declined 2.8% on weaker performance from Japan Subsidiary, TFK Corp (TFK), but partly mitigated by higher Gateway Services (GS) revenue from growth in Singapore and Hong Kong.

Correspondingly, FY15 cost of raw materials decreased by 8.0%, in-line with the decline in FS revenue. Tight cost management, productivity gains, lower depreciation from revision of useful lives of certain assets and lower cost of raw materials all resulted in a 2.5% reduction in FY15 operating expenses. Consequently, operating margin improved from 9.6% in FY14 to 10.2% in FY15. Pending management briefing later, maintain HOLD on SATS, but put our FV of S$2.98 under review.

Source: OCBC Research - 14 May 2015