Company Update, 27 September 2013

Transcription

1 Sep-12 Nov-12 Jan-13 Apr-13 May-13 Aug-13 Vol m Company Update, Buy (from Neutral) Industrial - Engineering & Construction Target Price: SGD3.49 Market Cap: USD2,797m Price: SGD3.13 Acquires Singapore Cruise Centre Macro Risks Growth Value Price Close Relative to Straits Times Index (RHS) SATS will acquire the Singapore Cruise Centre from Temasek via its subsidiaries. On completion of the transaction, SATS will effectively own a 96.8% stake, for which it will pay consideration of SGD106.5m. While its cruise terminal operation is not a major revenue contributor, it would somewhat reduce SATS reliance on the aviation industry. We upgrade our recommendation to BUY, with a DCF-based TP of SGD Source: Bloomberg Avg Turnover (SGD/USD) m/2.21m Cons. Upside (%) 16.3 Upside (%) wk Price low/high (SGD) Free float (%) 57 Shareholders (%) Temasek Holdings 43.2 Shariah compliant Lynette Tan lynette.tan@sg.oskgroup.com Singapore s only cruise and ferry terminal operator. SATS will acquire Temasek s entire stake in the Singapore Cruise Centre (SCCPL) through its subsidiaries, SATS Airport Services (SAS) and SATS- Creuers Cruise Services (SCCS). SAS will buy a 92% stake while SCCS will take up the remaining 8%. Taking into account SATS 60% stake in SCCS, SATS will have an effective stake of 96.8% in SCCPL for a cash consideration of SGD106.5m. This would be funded using internal resources. Following the acquisition, SATS will become Singapore s only cruise and ferry terminal operator. SCCS gets call option to raise stake. SAS has also granted SCCS a call option, expiring on 31 March 2014, to acquire 42.3% more of SCCPL for SGD46.5m. If it exercises this option, SCCS would end up with 50.3% of SCCPL while SAS would have a 49.7% stake. This would give SATS an effective stake of 79.9%, for a purchase consideration of SGD87.9m. A boost for the gateway services segment. This acquisition will allow SATS to expand its gateway services segment as well as reduce its reliance on the aviation industry. As cruise travel in Singapore is expected to grow at a CAGR of 10% from 2012 to 2017 (targeting 1.5m cruise passengers a year by 2017), the acquisition will put SATS in a good position to benefit from this trend. Earnings accretive. The acquisition, which is likely to be completed within the next two quarters, will contribute positively to SATS FY14 earnings. Assuming it achieves the same results in FY14 as in FY13, we estimate that the purchase would add SGD22.5m and SGD8.4m to our FY14F revenue and PBT estimates respectively. Forecasts and Valuations Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Total turnover (SGDm) 1,358 1,685 1,819 1,943 2,126 Reported net profit (SGDm) Recurring net profit (SGDm) Recurring net profit growth (%) 0.2 (6.0) Core EPS (SGD) DPS (SGD) Dividend Yield (%) Core P/E (x) Return on average equity (%) P/B (x) P/CF (x) EV/EBITDA (x) Net debt to equity (%) net cash net cash net cash net cash net cash Our vs consensus EPS (%) See important disclosures at the end of this report Powered by Enhanced Datasystems EFA TM Platform 1

2 Financial Exhibits Profit & Loss (SGDm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Total turnover 1,358 1,685 1,819 1,943 2,126 Gross profit 1,358 1,685 1,819 1,943 2,126 Gen & admin expenses (1,081) (1,359) (1,459) (1,552) (1,694) Selling expenses Other operating costs (108) (157) (168) (179) (196) Operating profit Operating EBITDA Depreciation of fixed assets (96) (109) (93) (89) (87) Operating EBIT Net income from investments Interest income Interest expense (2) (2) (3) (2) (1) Exceptional income - net 12 0 (20) - 1 Other non-recurring income 1 2 (1) (2) - Pre-tax profit Taxation (37) (37) (40) (42) (53) Minority interests (0) (4) - (0) 1 Profit after tax & minorities Reported net profit Recurring net profit Cash flow (SGDm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Operating profit Depreciation & amortisation Change in working capital (32) (68) (11) (71) 9 Other operating cash flow (45) (42) (29) (50) (55) Operating cash flow Interest received Interest paid (3) (2) (2) (2) (1) Dividends received Tax paid (47) (40) (29) (51) (42) Cash flow from operations Capex (68) (64) (38) (70) (70) Other investing cash flow (68) 263 (5) (103) 4 Cash flow from investing activities (136) 199 (43) (173) (66) Dividends paid (143) (188) (289) (167) (133) Shares repurchased (1) (1) (3) - - Increase in debt 112 (12) (5) (32) (22) Other financing cash flow 31 (14) 10 (2) 0 Cash flow from financing activities (2) (216) (286) (200) (155) Cash at beginning of period Total cash generated (89) (243) 15 Forex effects (3) (3) (9) (3) (3) Implied cash at end of period (1) See important disclosures at the end of this report 2

3 Financial Exhibits Balance Sheet (SGDm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Total cash and equivalents Inventories Accounts receivable Other current assets Total current assets Total investments Tangible fixed assets Intangible assets Total other assets Total non-current assets 1,632 1,291 1,225 1,263 1,247 Total assets 2,320 2,123 2,005 1,915 1,981 Short-term debt Accounts payable Other current liabilities Total current liabilities Total long-term debt Other liabilities Total non-current liabilities Total liabilities Share capital Retained earnings reserve 1,197 1,183 1,063 1,086 1,137 Shareholders' equity 1,521 1,509 1,402 1,385 1,436 Minority interests Total equity 1,620 1,616 1,497 1,460 1,515 Total liabilities & equity 2,320 2,123 2,005 1,915 1,981 Key Ratios (SGD) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Revenue growth (%) (11.8) Operating profit growth (%) (8.3) (0.0) Net profit growth (%) 5.6 (10.7) EPS growth (%) 3.7 (11.2) Bv per share growth (%) 0.9 (1.7) (7.7) (0.6) 3.6 Operating margin (%) Net profit margin (%) Return on average assets (%) Return on average equity (%) Net debt to equity (%) (7.4) (19.4) (18.3) (7.6) (13.4) DPS Recurrent cash flow per share See important disclosures at the end of this report 3

4 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 SWOT Analysis Strong balance sheet and cashflow An established player in the region The non-aviation business helps provide stability in overall operations The growing popularity of low cost carriers is an avenue for SATS to tap on The increasing number of cruise travellers to Singapore allows SATS to expand its gateway services segment Rising food inflation could erode margins Weak global economy could reduce air passenger traffic to the region, thereby affecting its operation. New groundhandling operator could take away some market share Operations are quite dependent on labour, which constitutes the largest operating cost for the Group. P/E (x) vs EPS growth P/BV (x) vs ROAE 25 25% % 20 17% % 15.6% 15 9% % 11.1% 10 1% % 6.7% 5-7% % 2.2% 0-15% % P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile SATS aviation business provides integrated ground handling and in-flight catering services. It has a 80%-85% market share in Changi Airport. Its non-aviation business is involved in the provision of food solutions to the Singapore Armed Forces, supermarkets and other major events in Singapore, via its subsidiary Singapore Food Industries. See important disclosures at the end of this report 4

5 2.63 NR Recommendation Chart Recommendations & Target Price Price Close 0.8 Oct-08 Jan-10 Apr-11 Jul-12 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: OSK-DMG estimates, Bloomberg Date Recommendation Target Price Price Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Buy Source : OSK-DMG estimates, Bloomberg See important disclosures at the end of this report 5

6 RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB which in turn is a whollyowned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. This report is therefore classified as a non-independent report. As of 26 September 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) - As of 26 September 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) - DMG & Partners Research Pte. Ltd. (Reg. No N) Kuala Lumpur Hong Kong Singapore Malaysia Research Office RHB Research Institute Sdn Bhd Level 11, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) Fax : +(60) RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) 12th Floor World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) Fax : +(852) DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore Tel : +(65) Fax : +(65) Jakarta Shanghai Phnom Penh PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 14th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia Tel : +(6221) Fax : +(6221) RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 1168 Nanjing West Road Shanghai China Tel : +(8621) Fax : +(8621) Bangkok RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) Fax: +(855) RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower 98, North Sathorn Road,Silom Bangrak, Bangkok Thailand Tel: +(66) Fax : +(66)