SINGAPORE (Nov 12): DBS is reiterating its “buy” recommendation on SATS with a lower target price of $5.60, compared to $5.65 previously, on positive long term growth prospects.
This came on the back of the group recording a 9% drop in 2Q19 earnings to $65.7 million, from $72.2 million in 2Q18, due to the absence of a one-off gain, as well as lower contributions from associates/joint ventures (JVs).
Excluding the one-off gain, the group would have saw a 0.8% y-o-y increase in underlying profit.
Revenue for the quarter was 4.2% higher at $453.1 million from $434.8 million last year, as volume in Food Solutions and Gateway Services registered revenue growth of 2.5% and 6.3% to $250.9 million and $201.6 million, respectively.
An interim dividend of 6 cents per share has been declared, which will be payable on Dec 7.
See: SATS posts 9% fall in 2Q earnings to $66 mil; declares 6-cent dividend
In a Friday report, analyst Alfie Teo and Andy Sim say, “We see long term growth fuelled by passenger and air traffic growth at Changi Terminal 4; automation and staff productivity driving modest cost increases and better margins in the next few years; the opening of Terminal 5 by 2030; and more positive outlook from TFK Japan.”
Despite the drop in 2Q earnings, the analysts have maintained their positive stance over the group’s long-term prospects, with Changi’s development over the next few years and Japan’s target of 40 million and 60 million tourists by 2020 and 2030, respectively, driving growth.
Japan’s aviation market is expected to be buoyed by tourist arrivals for upcoming events, including the G20 meeting in 2019, as well as the Tokyo Olympics and Rugby World Cup in 2020.
As at 3.50pm, shares in SATS are trading 3 cents lower at $4.85, giving it a FY19 price-to-book ratio of 3.4 times with a dividend yield of 3.7%.