SATS Limited (SATS) announced last evening that it has signed a commercial agreement with Singapore Post Limited (SingPost) to provide airmail consignment handling services to SingPost. While SATS is currently already providing such services to SingPost indirectly through its airline customers, processes such as sorting, scanning of airmails are still done separately and the need to transport the mails between facilities of these two companies still exist.

With this collaboration, the airmail operations of both SATS and SingPost will be integrated under SATS’ new automated facility, SATS eCommercce AirHub (AirHub), which is expected to be operational by Dec 16. SingPost will then cease and outsource their airport consignment operations to SATS by Dec 16, and will be the anchor customer of SATS’ AirHub.

With the integration and automation, SATS is expected to achieve a productivity gain of more than 30% for its AirHub operations.

In our view, with uncertain air travel demand across the region, acquiring SingPost as a direct customer in handling its eCommerce airmails is certainly positive for SATS’ future growth. However, with the growth hinged upon the volume growth of SingPost eCommerce airmail, we think it is still too early to adjust our forecasts for now, especially when the operation is only expected to begin from Dec 16.

Maintain HOLD, with an unchanged FV of S$3.78.

Source: OCBC Research - 18 Aug 2015