SATS Limited’s (SATS) 4QFY18 revenue fell 0.5% YoY to S$423.5m due to a 2.4% decline in Food Solutions’ (FS) revenue but partly offset by a 1.7% growth in Gateway Services’ (GS) revenue. Operating expenses fell 0.7% YoY to S$377.4m, with the decrease largely driven by the deconsolidation of SHK.

Share of after-tax profits from associates/JVs fell 16.7% YoY to S$24.0m due to weaker contributions from FS associates/JVs. Consequently, stripping out oneoff items, core 4QFY18 PATMI declined 0.2% YoY to S$51.5m.

For FY18, core PATMI missed expectations as it grew 0.8% to S$236.1m, but only formed 94.6% of our forecast. FY18 revenue fell 0.3% to S$1,724.6m, mainly attributable to weaker FS (-2.7%) contributions, mitigated by improved GS (+2.9%) performance.

Operating expenses, however, remained flat, as lower staff costs (-2.7%) with deconsolidation of SHK and lower raw materials costs (-2.1%) were offset by higher license fees (+24.7%) due to cessation of rebates, higher depreciation and amortization charges (+6.8%) and increase in other costs (+9.4%). Associates/JVs, however, improved 9.2% to S$71.2m on better performance from GS associates/JVs.

SATS is also recommending a final dividend of S$0.12 per share, bringing total dividends for FY18 to S$0.18 (FY17: S$0.17). Pending management briefing later, maintain HOLD on SATS put our S$5.50 FV under review.

Source: OCBC Research - 30 May 2018