SINGAPORE (Jan 16): OCBC Investment Research says it remains positive about the longer-term outlook for airport gateway services provider SATS on the back of its diversification strategy.
“Over the longer-term, we remain positive over SATS’ outlook driven by its strategy to diversify out of Singapore as well as into non-aviation business segments, through several overseas partnerships,” says OCBC lead analyst Eugene Chua in a report on Tuesday.
These include partnerships with AirAsia which opens up opportunities for SATS in Indonesia, Philippines and Thailand, as well as with Wilmar to supply quality and safe food in China.
“In addition, we also like its potential partnership with Turkish Airlines (THY) to provide in-flight catering services to THY and other airlines at Istanbul New Airport,” Chua says.
Meanwhile, Chua notes that operating statistics at Singapore’s Changi Airport have seen encouraging growth, and has room for longer-term traffic growth following the opening of Terminal 4 in October last year.
“That said, it remains unclear whether the pressure on yields faced by airlines will be translated to pricing pressure for SATS,” Chua cautions.
With the positive longer-term outlook, OCBC is raising its FY18-FY22 earnings per share by 2%-8%, and increasing its fair value estimate for SATS to $5.50.
However, the research house is downgrading SATS to “hold”, as its share price has climbed around 25% since it was upgraded to “buy” in October 2017.
“All considered, while we remain positive over its longer-term outlook, we believe investors should position themselves to accumulate at better entry levels, closer to $5.05 and lower,” Chua says.
As at 1.27pm, shares of SATS are trading 4 cents lower at $5.74, or 25.3 times FY18 earnings and a dividend yield of 3.1%.
