Towards Financial Freedom

Singapore Airport Terminal - Lower Revenue In 2Q14

kiasutrader
Publish date: Wed, 06 Nov 2013, 07:22 PM
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SATS'  2Q14  revenue  dipped  2%  y-o-y  to  SGD452.1m,  largely  due  to lower  food  revenue.  Operating  margins  remained  under  pressure, leading  to a 3% y-o-y decline in PATAMI. The expected y-o-y weakness in  the  JPY  would  mean  lower  revenue  contribution  from  TFK.  SATS' share price has risen 9% over the past month and our DCF-based TP of SGD3.49 now presents a 3% upside. Downgrade to NEUTRAL.
  • Lower food revenue due to TFK and Qantas. The lower load factor for the  Japan-China route due to strained Sino-Japanese relationships  led to  lower  business  volume  at  TFK.  Nevertheless,  the  latter  remained profitable during  the quarter. Going forward, the JPY  is likely to remain weak  y-o-y.  While  the  diversion  of  Qantas'  European  flights  from Singapore  to Dubai  continued  to  pressure  2Q14  revenue,  management does  not  expect  further  negative  impact  on  a  q-o-q  basis  moving forward.
  • Aviation  business  likely  to  be  challenging.  Passenger  traffic  at Changi is expected to  record moderate growth, while airfreight demand will  likely  remain  weak.  The  silver  lining  is  the  addition  of  new  flight destinations  by  airlines  while  the  growth  in  the  low-cost  carrier  (LCC) segment could boost business volume. Higher staff costs  will continue to weigh  on margins,  given a rise in foreign worker levies.  Meanwhile, its acquisition  of  Singapore  Cruise  Centre  is  on  track.  Once completed, it would boost  revenue growth and reduce SATS' reliance on the aviation industry.
  • Lower estimates;  TP  unchanged.  With JPY expected to remain weak going forward, we lower our assumptions on TFK's revenue contribution. Hence,  we  arrive  at  a  slightly  lower  PATAMI  estimate  of  SGD215m (previously  SGD222m)  and  keep  our  DCF-based  TP  of  SGD3.49, pegged to a P/E of 18x FY14F earnings. SATS' share price has risen 9% over  the  past  one  month  following  its  acquisition  announcement,  thus leaving little upside to our TP. Downgrade to NEUTRAL.
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SATS aviation business provides integrated ground-handling and in-flight catering services. It has an 80%-85% market share in Changi Airport.  Its  non-aviation  business  involves  providing  food  solutions  to  the  Singapore  Armed  Forces,  supermarkets  and  other  major events  in  Singapore,  via  its  subsidiary  Singapore  Food  Industries.  It  also  provides  handling  services  for  cruise  passengers  in Singapore, through its operations at the International Cruise Terminal.
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