Stock market Analysis: SATS Ltd

• Unlikely to see margins recover yet
• May benefit from Qantas’ return
• Maintain HOLD

Higher Traffic Does Not Mean Higher Margins

For the period between Jan and Jul 17, Singapore’s Changi Airport recorded strong traffic statistics as passenger throughput rose 5.5% YoY, and aircraft movements grew 3.1% on the back of encouraging tourism data in Singapore. According to Singapore Tourism Board, visitor arrivals (by air transport) between Jan and Jun 17 registered a healthy 5.2% YoY growth, driven mainly by visitors from Australia, China, India and Indonesia.

SATS Ltd (SATS) is a provider of gateway services (GS) and food solutions (FS) at Changi Airport and we estimate it handles close to 80% of the traffic throughput there. Hence, we believe the traffic growth recorded is positive for SATS.

That said, passenger yields remain weak for the airline industry, which translates to pressure on SATS’ margins as its airline customers will likely engage in cost management efforts, especially for its low cost carrier customers.

Qantas Return to Changi Airport May Potentially Benefit SATS

Australia-listed Qantas Airways Ltd (Qantas) announced recently the extension of its partnership with Emirates for another five years (subject to government and regulatory approval), while making certain changes to the collaboration. Notably, there are two key changes from 25 Mar 18 onwards:

Qantas will re-route its daily Sydney-London A380 service via Singapore rather than Dubai, to replace one of the existing two daily Sydney-Singapore A330 services, and

Qantas will upgrade one existing daily Melbourne-Singapore flight from an A330 to an A380, with the second three per week service increased to a daily A330 service.

In essence, these changes will be positive for traffic growth at Changi Airport, and if SATS does secure FS and GS contracts from Qantas, it may further provide a lift to its earnings.

Re-engage Closer to S$4.70 or Lower

All considered, we prefer to wait for its 2QFY18 results for clarity over its margins and keep our forecasts unchanged. Maintain HOLD on SATS with a S$5.05 FV, but would look to re-engage below S$4.70.

Source -  OCBC Research 

Growing the Fund Management Business of Keppel Corporation

Yesterday, The Business Times reported that KBS and Keppel Capital will be jointly listing US REIT assets. Keppel Corporation has confirmed that efforts are ongoing to carry out an IPO and listing of a U.S. commercial REIT on the main board of the SGX. This will be jointly sponsored by Keppel Capital and KBS Pacific Advisors Pte Ltd.

The initial portfolio of 11 office assets will be injected into the REIT by a fund managed by KBS Capital Advisors LLC. Based on a WSJ report, the REIT listing is expected to raise about US$500m. The move is also in line with Keppel’s aim to grow its fund-management business.

Maintain BUY with S$7.36 fair value estimate on Keppel Corp.

Market View of CWT Limited

HNA Announced Firm Intention to Make VGO for CWT

Having held a general meeting yesterday to seek shareholders' approval for the acquisition of CWT Ltd (CWT), HNA Holding Group (HNA) announced last evening its firm intention to make the voluntary conditional offer (VGO) for CWT now that all of the pre-conditions have been satisfied or waived (as the case may be).

Ending the recent uncertainties over HNA's ability to fund the acquisition, China International Capital Corporation (Singapore) confirms that sufficient financial resources are available to the HNA to satisfy full acceptance of the VGO, and note that HNA currently has no holding of CWT.

In addition, pursuant to the vendor undertakings, the VGO will become unconditional as to acceptances upon the vendors tendering their CWT shares (representing ~65.1% stake in CWT) in acceptance of the offer.

Note that HNA has also stated that it does not intend to and will not increase the offer consideration or revise any other terms of the VGO. As such, the offer consideration is the final Share price for the offer shares.

Full details of HNA’s VGO for CWT will be contained in the offer document to be despatched to shareholders of CWT not earlier than 14 days and not later than 21 days from 7 Sep 17.

Our rating of ACCEPT THE OFFER remains unchanged with this formal VGO announcement.

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SGX Share StarHub Ltd Daily update

StarHub Ltd (SGX: CC3) is one of three Singapore media transmission organizations that additionally incorporate Singapore Telecommunications Limited (SGX: ZY4) and M1 Ltd (SGX: B2F). StarHub has five business portions, specifically, Mobile, Pay TV, Broadband, Enterprise Fixed and Equipment deals. 

The organization has as of late detailed its second-quarter FY17 result. In this article, we will take a gander at the great and terrible from the declaration. 

Generally speaking, we can see that aggregate income is imperceptibly lower by 1% year-on-year. 

Net benefit fell significantly more – by 21% year-on-year – primarily because of lower administrations income, nonattendance of NBN stipends, higher fund cost and nonappearance of one-time reasonable esteem pick up. 

Of the five fragments, just Enterprise Fixed Services and Equipment Sales recorded positive income on a year-on-year premise. 

Negatives: 

There were a couple of negative focuses in the quarter that financial Advisor might need to focus on. 

Right off the bat, the normal income per client (ARPU) declined for portable, pay-television and broadband administrations. 

Besides, cost of offers developed by 4.5%, notwithstanding level income, for the most part, because of increment in cost of gear and cost of administrations. This was counterbalanced by bringing down "other" working costs. 

Thirdly, EBITDA edge was around 1.5% from 34.7% a year ago to 33.2% this year for the most part because of income declining quicker than working expense. 

In conclusion, Starhub's free income was altogether lower at $16 million, when contrasted with $137 million in a similar period a year ago. 

Positives: 

Notwithstanding the generally negative tone of the quarter's report, Starhub conveyed a few positives news. 

Right off the bat, its general client numbers were up for both paid ahead of time and postpaid administrations, in spite of a decrease in normal income per client (ARPU). Accordingly, its portable piece of the overall industry was up from 26.9% a year prior to 27.0%. 

Furthermore, the Enterprise Fixed fragment developed its income fundamentally because of expanded income from information and web administrations, which was somewhat balanced by bringing down voice income.

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