With Japan targeting to receive 40m inbound visitors by 2020, we believe SATS Limited (SATS) will be a likely beneficiary through its Japan airline catering subsidiary, TFK. The tourism boom in Japan is not new news – Japan recorded double-digit YoY growth in foreign visitors for the past five years (2012-2016) and for the period Jan-Apr 17, Japan continued to register strong growth of 16.4% YoY to 9.1m foreign visitors.

Note that the 2020 Summer Olympics will be held in Tokyo, Japan, which is another factor that may help sustain the strong tourism growth.

TFK operates in both Narita and Haneda airports in Tokyo – and according to CAPA Centre for Aviation, Narita and Haneda airports are ranked first (35.8%) and third (18.1%) in terms of market share in Japan, respectively, based on international seat capacity.

That said, the intense competition in the airline catering business at these two airports is persistent and is also the key reason for the weak profitability of TFK more than a year back, although it recorded improvement in FY17 after securing Delta Airlines’ multi-year contract that commenced in 3QFY16.

Hence, for now, we keep our forecasts unchanged. Maintain HOLD on SATS with the same FV of S$5.12.

Source: OCBC Research - 22 Jun 2017