Share of results of associates/joint ventures for the quarter also came in 51.1% higher y-o-y at $20.7 million. This was due to a one-off gain that the group recognised from DFASS SATS for the disposal of the business to KrisShop, a joint venture held which 70% is held by Singapore Airlines (SIA), 15% by SATS and 15% by DFASS.
See: SATS posts 3.5% increase in 3Q earnings to $68.9 mil
CGS-CIMB has upgraded its call on SATS to “add” from “hold” previously with an increased target price of $5.46 from $5.06.
The group’s earnings came in above the research house’s forecast and consensus. Overall operations were also better than expected.
Gateway revenue for 3Q19 was up 6.2% y-o-y at $211 million with stronger market share in ground handling as well as stronger cruise centre profit. Food solutions increased by 5% y-o-y to $252 million with TFK Japan operations remaining steady.
In a Wednesday report, analyst Lim Siew Khee says, “We expect stronger growth in TFK in 2020, riding on the Olympics fever which should see demand in more kitchen capacity at Tokyo airport. SATS has started to increase its capacity in Haneda.”
Excluding the one-off gains from DFASS, gateway associates’ profit grew 16% q-o-q to $12 million, with the help of the INR recovery. The implication of higher franchise fee in Indonesia remained in 3Q19 but management expects pass-through effects to customers to kick in by 4Q19.
Similarly, DBS Group Research is reiterating its “buy” recommendation on SATS with a target price of $5.59.
In a Thursday report, analyst Alfie Yeo says, “Evidently, Changi’s robust throughput numbers have translated into solid revenue growth numbers for SATS in 3Q19. We remain positive that Changi and the region’s aviation growth will continue to drive long term earnings growth for the stock.”
The analyst also has a positive stance over the group’s long-term prospects for passenger throughput growth with Changi’s development and Japan’s target of 40 million and 60 million tourists by 2020 and 2030 respectively, which is positive for TFK Japan’s outlook.
The stock also continues to be supported by a decent dividend yield of 4%.
Maybank Kim Eng is also keeping its “buy” call on SATS with a lowered target price of $5.80 from $5.90 previously.
The research house views that the group is gaining share in the home market.
Gateway Services (GS) and Food Solutions posted 3Q revenue growth of about 6%/5% outpacing the aircraft and passenger movement growth at home base Changi Airport during the quarter.
GS revenues in particular have been benefitting from some cruise line customers using Singapore for ‘home base’ berthing in recent quarters.
The group’s profit from associates and joint ventures (JV) saw a rebound to positive growth of about 9% y-o-y after the 22% decline in 2Q19, which was due to increases in concession fees at its Indonesia ventures.
In a Thursday report, analyst Neel Sinha says, “We expect further improvement as these increased costs are priced gradually through in customer contract renewals. Most associate/JV entities delivered with the notable exception of Brahims catering, where a turnaround continues to be elusive.”
The analyst also expects the group’s recent ventures in China, India, Saudi Arabia and Malaysia to be growth contributors in the coming 12-18 months.
As at 12.50pm, shares in SATS are trading 2.01% higher at $5.08 or 3.2 times FY19 book with a dividend yield of 3.61%.
