SATS Limited (SATS) ended its FY17 with no surprises as 4QFY17 revenue grew 2.0% YoY to S$425.8m, and operating expenses rose 3.3% to S$380.0m driven by increases across all expense categories except for cost of raw materials. SATS also recorded a negative goodwill of S$15.0m arising from increased stake in a long-term investment in 4QFY17 but excluding it, core PATMI grew 1.8% YoY to S$51.6m.

For FY17, core PATMI was largely within expectations as it increased 7.4% to S$234.3m and formed 96% of our forecast. FY17 revenue rose 1.8% to S$1,729.4m, mainly attributable to growth across both Food Solutions (+0.6%) and Gateway Services (+3.4%).

Operating expenses, however, grew at a slower pace than revenue, mainly driven by higher staff costs due to service increment and higher subcontract costs to support increased business volumes but mitigated by fall in cost of raw materials with the transfer of food distribution business to its JV. Consequently, operating margin improved from 12.6% in FY16 to 13.3% in FY17.

SATS is also recommending final dividend of S$0.11, bringing the total dividend for FY17 to S$0.17 (FY16: S$0.15). Pending management briefing later, maintain HOLD on SATS, but our FV of S$4.70 is under review.

Source: OCBC Research - 19 May 2017