SINGAPORE (Nov 5): OCBC is maintaining its “hold” call on SATS with $3.78 fair value as operational improvements have resulted in higher margins and the house expects stable growth ahead.

In 2Q16, SATS says PATMI grew 26.8% y-o-y to $59.7 million despite a 4.2% decline in revenue to $422.7 million. However, 2Q operating margin improved by 4.4ppt to 14% as efforts to manage costs and drive productivity led to a 9.1% decline in operating expenses across all expense categories.

2Q net margin rose 3.4ppt y-o-y to 14.1%, helped by a 10.2% increase in contribution from overseas associates and JVs to $11.9 million.

“For 1HFY16, SATS’ revenue declined 4.3% to $839.6 million but core PATMI came in largely in-line with our expectations as it rose 18.0% to $106.8 million, which formed 50.8% of our FY16F forecasts,” says lead analyst Eugene Chua.

Looking ahead, Chua believes SATS will continue to record stable growth on continuous efforts to control costs; growth in its cargo business that commands higher margins; growth in overseas associates and JVs; improving performance from its Japanese subsidiary, TFK and lastly, a strong pipeline of overseas investment opportunities.

“With in-line 1HFY16 results, we opt to keep our forecasts largely unchanged,” says Chua.

SATS is up 2.4% at $3.89.