SATS 2QFY13 PATMI grew 25.4% YoY to S$50.3m, on the back of revenue growth of 8.8%to S$461.5m. Revenue was in line while PATMI exceeded expectations slightly due to better-than-expected margins. Included in 2QFY12 results was a one-off loss on early retirement of a sale and leaseback arrangement (S$4.5m). Excluding this, PATMI would have grown 9.3%. Growth momentum in the food business is expected to continue over the next two quarters, supported by the upcoming seasonally stronger period for the aviation business. This would be somewhat offset by the continued slowdown in the cargo segment. Given the better 2Q, we have tweaked our estimates slightly. Maintain NEUTRAL.

Good job on managing costs, but pressures to remain. SATS did well in managing its raw material costs, as it was able to improve EBIT margins to 11.3% in 2QFY13 from 10.7% a year ago. However, with increased government levies and headcount, we believe the cost pressures (especially from staff cost) are here to stay. Given that management had managed to improve margins in 1HFY13, we are raising our margin assumptions slightly.

Hints of possible investment opportunities in the near future? SATS has a strong balance sheet (net cash of 14.9 S'' / share). With no intention to increase its planned capex spending, management aims to continue distributing good dividends, while taking into consideration the possible business opportunities it has in the pipeline.

Maintain NEUTRAL. We have tweaked our earnings estimate to S$193.6m (from S$184.7m) for FY13, as we adjust our margin assumptions. We like SATS for its stability and strong balance sheet, but we think that the current prospects have been priced in.

Source: OSK