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 3.4 3.3 3.2 Price Close Relative to Straits Times Index (RHS) 121 118 115 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 SGD3.49. 3.1 112 3.0 2.9 2.8 2.7 2.6 5 4 4 3 3 2 2 1 1 Source: Bloomberg Avg Turnover (SGD/USD) 109 105 102 99 96 2.81m/2.21m Cons. Upside (%) 16.3 Upside (%) 11.6 52-wk Price low/high (SGD) 2.68-3.36 Free float (%) 57 Shareholders (%) Temasek Holdings 43.2 Shariah compliant Lynette Tan 65 6232 3895 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) 191 171 185 222 244 Recurring net profit (SGDm) 180 170 202 223 243 Recurring net profit growth (%) 0.2 (6.0) 18.9 10.9 8.6 Core EPS (SGD) 0.16 0.15 0.18 0.20 0.22 DPS (SGD) 0.17 0.26 0.15 0.12 0.13 Dividend Yield (%) 5.4 8.3 4.8 3.8 4.2 Core P/E (x) 19.1 20.5 17.3 15.6 14.4 Return on average equity (%) 12.7 11.3 12.7 15.9 17.3 P/B (x) 2.26 2.30 2.49 2.50 2.42 P/CF (x) 19.3 23.1 14.5 26.8 14.7 EV/EBITDA (x) 10.3 9.0 8.5 8.4 7.7 Net debt to equity (%) net cash net cash net cash net cash net cash Our vs consensus EPS (%) 6.6 9.4 See important disclosures at the end of this report Powered by Enhanced Datasystems EFA TM Platform 1
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 - - - - 1 Other operating costs (108) (157) (168) (179) (196) Operating profit 169 169 192 212 237 Operating EBITDA 265 278 285 301 324 Depreciation of fixed assets (96) (109) (93) (89) (87) Operating EBIT 169 169 192 212 237 Net income from investments 48 42 54 56 58 Interest income 1 1 1 1 1 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 229 212 225 265 296 Taxation (37) (37) (40) (42) (53) Minority interests (0) (4) - (0) 1 Profit after tax & minorities 191 171 185 222 244 Reported net profit 191 171 185 222 244 Recurring net profit 180 170 202 223 243 Cash flow (SGDm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Operating profit 169 169 192 212 237 Depreciation & amortisation 96 109 93 89 87 Change in working capital (32) (68) (11) (71) 9 Other operating cash flow (45) (42) (29) (50) (55) Operating cash flow 188 167 245 180 278 Interest received 1 1 0 1 1 Interest paid (3) (2) (2) (2) (1) Dividends received 40 24 26 2 2 Tax paid (47) (40) (29) (51) (42) Cash flow from operations 179 150 240 130 237 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 64 98 97 406 61 Total cash generated 41 133 (89) (243) 15 Forex effects (3) (3) (9) (3) (3) Implied cash at end of period 102 228 (1) 159 73 See important disclosures at the end of this report 2
Financial Exhibits Balance Sheet (SGDm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Total cash and equivalents 304 472 406 211 279 Inventories 59 44 53 58 64 Accounts receivable 319 308 315 375 383 Other current assets 5 8 7 8 9 Total current assets 688 831 780 653 734 Total investments 360 390 410 409 409 Tangible fixed assets 742 654 592 573 556 Intangible assets 487 213 193 274 276 Total other assets 44 34 30 6 6 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 164 27 23 13 7 Accounts payable 286 203 237 233 255 Other current liabilities 44 42 51 42 53 Total current liabilities 494 272 310 288 315 Total long-term debt 21 131 109 87 70 Other liabilities 186 103 90 80 81 Total non-current liabilities 207 234 198 167 151 Total liabilities 700 506 509 455 466 Share capital 325 326 338 299 299 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 99 107 95 75 79 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) 24.1 7.9 6.8 9.4 Operating profit growth (%) (8.3) (0.0) 13.8 10.1 12.1 Net profit growth (%) 5.6 (10.7) 8.1 20.2 9.7 EPS growth (%) 3.7 (11.2) 7.7 20.2 9.7 Bv per share growth (%) 0.9 (1.7) (7.7) (0.6) 3.6 Operating margin (%) 12.4 10.0 10.6 10.9 11.2 Net profit margin (%) 14.1 10.1 10.2 11.4 11.5 Return on average assets (%) 9.1 7.7 9.0 11.3 12.5 Return on average equity (%) 12.7 11.3 12.7 15.9 17.3 Net debt to equity (%) (7.4) (19.4) (18.3) (7.6) (13.4) DPS 0.17 0.26 0.15 0.12 0.13 Recurrent cash flow per share 0.16 0.14 0.22 0.12 0.21 See important disclosures at the end of this report 3
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% 2.55 20.0% 20 17% 2.50 2.45 17.8% 15.6% 15 9% 2.40 2.35 13.3% 11.1% 10 1% 2.30 2.25 8.9% 6.7% 5-7% 2.20 2.15 4.4% 2.2% 0-15% 2.10 0.0% 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
2.63 NR 3.07 2.54 2.57 2.83 3.01 3.01 Recommendation Chart 3.8 3.3 2.8 2.3 1.8 1.3 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 2013-07-26 Neutral 3.01 3.32 2013-05-16 Neutral 3.01 3.20 2013-01-31 Neutral 2.83 3.05 2012-11-07 Neutral 2.63 2.80 2012-07-26 Neutral 2.63 2.80 2012-07-19 Neutral 2.57 2.82 2012-04-24 Neutral 2.54 2.62 2011-10-31 Neutral 2.54 2.46 2010-02-05 Buy 3.07 2.61 Source : OSK-DMG estimates, Bloomberg See important disclosures at the end of this report 5
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. 200808705N) 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) 3 9280 2185 Fax : +(60) 3 9284 8693 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) 2525 1118 Fax : +(852) 2810 0908 DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211 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) 2598 6888 Fax : +(6221) 2598 6777 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 20041 China Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633 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) 23 969 161 Fax: +(855) 23 969 171 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 10500 Thailand Tel: +(66) 862 9999 Fax : +(66) 108 0999 6