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UOBKH: Ignore The Bears; Buy SATS For 18% Upside!
Aspire, Hot Picks | 22 May 2015
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By: Raymond Leung
Articles (142) Profile

Analysts' updates on SATS Limited as at 22/05/2015

SATS managed to impress analysts with their recent 4Q15 (FY ending 31 March 2015) results despite the general weak market sentiments. UOB Kay Hian Research (UOHKH) analysts upgraded SATS to a “Buy” based on their improve performance and optimistic long term growth plan.

Overseas JVs To Boost Profits

Source: Income Statement for SATS, Bloomberg

Revenue for SATS decreased by 2.2 percent Year-on-Year (YoY) to $425.1 million. This was due to the decline in food solutions revenue, which was fortunately offsetted partially by higher gateway services revenue.

The group’s net profit managed to work against the lower revenue and grow by 21.1 percent to $51.6 million. Higher contributions from overseas joint-ventures (JV) and associates, and effective cost saving initiatives were the main attributes for the higher net profit.

Overall, SATS outperformed its 4Q15 expectations from the street as the profit was 22 percent higher than consensus estimates.

Expanding Through New JVs

SATS is committed to expand its non-flight food solutions business with their JV with BRF, the world’s sixth largest food manufacturer and distributor. The new JV will help SATS extend its reach into the processed food distribution industry and ultimately, the branded meat distribution.

To achieve this goal, SATS will be tapping into BRF’s processing, manufacturing and distribution capabilities. Concurrently, SATS will also be utilising its existing food processing facilities.

Savings And Restructuring To Drive Growth

Changi Airport Group is offering a 20 percent rebate on ground handling and inflight catering from May onwards. SATS had mentioned that it will be partially spent on improve efficiency. A reduction in licensing fee for FY16 is also expected and is estimated to stand at $3 million.

SATS Japanese unit, TFK Corporation, has been a drag to SATS for years but the situation might turn for the better. In this quarter, the group incurred an undisclosed restructuring cost at TFK.

It subsequently announced an increased utilisation of its surplus kitchen capacity to provide institutional catering could stem losses and improve margins.

Analysts’ Thoughts

Analysts from UOBKH upgraded SATS to “Buy” as they hold a bullish sentiment towards the group. The target price of SATS was brought up to $4 from $3.11, which will bring a potential upside of 18.3 percent.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

SATS  4.790 -- --   
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

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