SATS Limited (SATS) ended its FY16 with no surprises as 4QFY16 revenue declined 1.8% YoY to S$417.6m, mainly due to transfer of food distribution business to its JV. Even though 4QFY16 operating expenses dropped 3.3% to S$367.9m, SATS’ PATMI still declined 1.7% to S$50.7m; mainly due a 10.7% decrease in contributions from associates and JVs, and a S$2.1m impairment of its PPE on fair value adjustments of certain non-core assets in Japan.

For FY16, core PATMI was within expectations as it rose12.4% to S$220.2m and formed 99.1% of our forecast. FY16 revenue fell by 3.1% to S$1,698.2m, due primarily from Food Solutions (FS) where revenue declined 8.0% on transfer of food distribution revenue to JV and weakening of JPY against SGD, but partly mitigated by higher Gateway Services (GS) revenue.

FY16 operating expenses fell at a faster pace than revenue as a result of tight cost management, productivity drive and lower energy costs. Consequently, operating margin improved from 10.2% in FY15 to 12.6% in FY16. Pending management briefing later, maintain HOLD on SATS, but put our FV of S$4.00 under review.

Source: OCBC Research - 23 May 2016