SINGAPORE (June 14): OCBC Investment Research is upgrading its call on SATS Limited to “buy” from “hold” with an unchanged fair value of $5.50.
The upgrade comes on the belief that the counter now looks attractive at its Wednesday closing price of $5.06 – and will continue to remain so as long as it remains below the share price of $5.15, especially given the group’s expanding presence in Asia.
In a Thursday report, lead analyst Eugene Chua says he sees SATS to ride on the continued strong growth of Changi Airport, which posted encouraging statistics for April 2018, in the analyst's view. This will ultimately benefit the gateway services and food solutions provider considering how it handles about 80% of the traffic throughput in Changi Airport alone, says Chua.
“We also expect Terminal 4 (T4), which opened on 31 Oct 17, to help contribute to longer-term traffic growth at Changi Airport. This also translates positively for SATS given that it is co-handling the ground operations at T4 with AirAsia,” he adds.
Meanwhile, Chua’s positive long-term view on SATS’ outlook remains unchanged so long as the group’s diversification strategy in its expansion beyond Singapore, as well as into non-aviation business segments through collaborations with overseas partners, remains in place.
“For non-aviation, we like its partnership with Wilmar to supply quality and safe food in China, leveraging on each other’s capabilities (i.e. SATS’ expertise in operating central kitchen and Wilmar’s extensive distribution network in China),” says Chua.
On the group’s aviation segment, he comments: “We are constructive on SATS’ ground handling partnership with AirAsia where both firms will own an interest in each other’s ground-handling units. We are long-term positive on this partnership as it allows SATS to gain access to 15 airports in Malaysia. Beyond these, a potential catalyst would be the potential partnership with Turkish Airlines to provide in-flight catering services at Istanbul New Airport.”
As at 11.34am, shares in SATS are trading 1.2% lower at $5 or 22.5 times FY19 forecast earnings.
