Unit services handled grew QoQ. Unit services handled in 1QFY13 was 6.7% more than 4QFY12. This was largely due to an increase in services provided to larger aircraft. This was likely driven by an increase in travel to further destinations such as Europe during the June holiday season, where the route is usually undertaken by larger aircrafts. The increase in unit services handled is also contributed by a greater number of flights handled (+1.5% QoQ, +7.2% YoY) during the quarter.

Cargo volume stable despite weak demand. Cargo volume declined 5.2% YoY, due to economic slowdown in the US and Europe. Compared with the previous quarter, cargo volumes grew slightly by 2.1%. We think demand in the cargo segment is likely to remain weak, on the back of a weak global economy.

Passenger traffic still healthy. Passengers handled increased 3.6% QoQ (9.0% YoY), to cross the 10.0m mark for the first time, likely due to the holiday season and more passengers taking short and frequent trips on LCCs. With healthy passenger traffic at Changi, we estimate that SATS' Airport Services division (ground handling services and cargo) would record flat YoY revenue growth, while growth in its Food Solutions segment would be helped by improvement in TFK.

Maintain NEUTRAL. SATS had announced a special dividend of 15 S''/share for 4QFY12 (total dividend for FY12: 26 S''/share), which is payable on 15 Aug 12. We like SATS' steady dividends, supported by a strong balance sheet (net cash: 28.3 S''/share). Currently, SATS is trading cum-dividend, at 16.7x P/E (average 14.5x P/E). The ICT has commenced operations, but positive contribution is only likely in FY14. Maintain NEUTRAL, with DCF-based TP of S$2.57.

Source: OSK