SINGAPORE (Sept 18): Shares of SATS have fallen by about 7% from its recent peak in end Jul compared to the STI’s 6% drop in the same period, OCBC Investment Research, amid concerns about trade tensions between the US and China.
This means SATS’s gains of as high as 13% in the earlier part of this year have been erased and the stock is now down about 5% YTD.
In a Tuesday note, OCBC lead analyst Low Pei Han urges investors to think long term as business leaders have that time frame in mind and continue implementing strategies that they have embarked on.
“That’s because SATS is poised to benefit from growth in global air passenger and cargo volumes along with increasing demand for travel and related services,” says Low.
To satisfy demand, SATS has been turning to automation and technology to increase productivity and reduce reliance on manpower costs.
In Aug 2016, the group announced that it was investing in a new production line that would enable mechanisation of up to 50% of certain kitchen operations in anticipation of increased regional demand
In Apr 2017, SATS also unveiled a new eCommerce AirHub, a $21 million facility co-funded by CAAS to enhance Changi’s eCommerce mail sorting capability to support the growing e-commerce market.
The group has been systematically deploying technology to different parts of its business and is now focusing on gateway services and ground handling services.
For instance, SATS is testing a remote-controlled vehicle that can collect luggage from a plane and move it to the baggage handling area in as little as 10 minutes.
Low says the stock is currently trading at about 20.5x forward earnings, nothing 20x is the lowest the stock has traded since Aug 2016 while the peak was 24.5x in Jan this year.
Meanwhile, the group’s ROE has increased from 12.8% in FY14 to 16.2% in FY18 and its dividend has also increased by $0.01/share each year from $0.13/share in FY13 to $0.18/share in FY18.
“We maintain our fair value of $5.39,” says Low who has a “buy” on SATS, “The 3.85% dividend yield is also decent with growth prospects.”
As at 1.07pm, SATS shares are trading at $4.89 or 21 times forward FY20 earnings.
