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Dividend Plays! SATS & Del Monte
Tradeable, Tradeable Ideas | 18 December 2013
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By: Justin Harper
Articles (23) Profile

Export figures out of Singapore yesterday could put traders in a slightly more cautious mood today. Non-oil domestic exports (NODX) surprised analysts with an 8.8 percent drop, compared to the 4.3 percent rise they had been expecting.

But with fairly sluggish trading volumes as of late, many will just be hoping the year ends soon and 2014 sees the local market liven up a little.

Flying high with SATS
Airlines in Asia are due to embark on capacity expansion next year which could see a higher volume of workload in store for domestic companies such as SATS. Ongoing airspace liberalisation could also boost air traffic levels leading to higher yields in the long run.

The expansion of Changi Airport will be a leading indicator. Analysis by Maybank Kim Eng’s regional aviation team suggests that Singapore’s air traffic growth could be constrained in the near term due to limited runway capacity.

But plans to build a third runway by 2020 could spur air traffic growth. This would also see Changi Airport’s terminal handling capacity double by mid-2020. With such a high level of expansion planned and the higher demand for aviation services, analysts are excited about the investment opportunities on offer.

Firms in the aviation services sector are generally regarded as steady dividend plays. But if interest rates start to creep up then they may lose some of their attractiveness.

In 2014, SATS should also see an uplift from the completion of its acquisition of the Singapore Cruise Centre. This acquisition could enhance dividends payouts. Maybank King Eng expects SATS to outperform its peers in 2014 and reiterates its buy call, with a target price of S$4.00.

CIMB likes the 4.9 percent yield currently offered on SATS shares along with its strong balance sheet (net cash of $270 million) and encouraging volume growth in Changi Airport. The bank maintains its outperform call. The average uplift in the counter’s share price predicted among analysts is 10.5 percent.

Taking a bite out of Del Monte
Philippines-based Del Monte Pacific’s 3Q13 profit was broadly in-line with expectations, but sales growth during the quarter was a miss, particularly from the Philippines. However, this was compensated by higher-than-expected operating margins.

Excluding one-off costs related to the US-based Del Monte Foods (DMF) transaction and dual-listing this year, 9M13 net profit was up 11 percent, year-on-year putting the company on course for a strong year. But the biggest focus will be on its recent US$1.675 billion ambitious deal to buy Del Monte Foods.

Maybank Kim Eng expects a stronger 4Q from the Philippines after 3Q13 revenue from its home market was flat year-on-year, and up just 4 percent in Peso terms. The bank’s research department understands that inventory with its general trade distributors was slightly high, hence the weak sale this quarter.

This should, however, prepare the company for a strong 4th quarter, which is seasonally most important. 9M13 revenue in this market was still up 11 percent and management is now guiding for 13 percent full-year growth versus its 15 percent expectation at the beginning of the year.

Maybank maintains its buy call while emphasising a longer-term approach towards the counter. DBS Vickers feels the recent sell down looks overdone, and the uncertainty over the acquisition may have been more than priced in. The average share price uplift expected among analysts is 75 percent.


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Justin Harper is an experienced financial journalist who previously worked on the business desks of the Daily Mail, The Telegraph and Financial Times Business in London.

Please click here for more information about this author.

SATS  4.820 -0.05 -1.03%   
Business: Asia's leading provider of gateway services and food solutions. [FY19 Turnover] Food solutions (54.1%), gateway svcs (45.8%), others (0.1%).

Insight: May-19, FY19 revenue rose 6% to $1.8b driven by hi... Read More
Del Monte Pacific  0.130 -0.001 -0.76%   
Business: Co produces processed & non-processed fruit & food pdts, beverages & food ingredients.

Insight: Mar-19, 9M19 turnover fell 10.4% to US$1.5b largel... Read More

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