SINGAPORE (May 17): UOB Kay Hian is estimating SATS will post a 25% y-o-y increase in headline net profit when the airline gateway services and food solutions provider reports its FY17 earnings this Friday, versus the street’s implied estimate of 4.3% growth.

This is because the research house believes the street may not have factored in a combined $12 million of gains from the group’s disposal of its 4% stake in Air Airfreight Terminal (AAT), an air cargo handling terminal operator in Hong Kong, as well as its 51% stake in SATS HK, both of which were announced in 4Q.

“Excluding [the disposals], our estimate of 5% growth in core net profit is in line with consensus estimate. We also estimate 13.2 cents in final dividend, assuming all divestment gains from sale of SATS HK and AAT will be distributed to shareholders,” say analysts K Ajith and Sophie Leong in a Wednesday report.

Their final dividend projection beats the consensus of 10.7 cents, based on the assumption that all divestment gains will be distributed to shareholders.

Going forward, the analysts are in the view that SATS’ earnings growth will be “highly dependent” on flight growth out of Changi Airport, as well as the group’s ability to generate returns on its investments in its joint ventures (JVs) and associates.

Greater revenue would also imply pick-up in premium meal volumes given SIA’s improving long-haul loads – considering 4Q’s similar throughput growth of 4.7 to the 4.8% growth of Changi pax throughput in the previous quarter, and how SIA’s loads to Europe have risen for three consecutive months.  

“In FY16, gateway margins improved 0.8 percentage points y-o-y to 6.5%, which led to a 19% rise in gateway operating profits. SATS only discloses the numbers on annual basis and an improvement in operating margins would imply better labour productivity or capital efficiency. We would also query SATS on the impact of the recent approval for meat transshipment from New Zealand to Europe via its Singapore’s hub.,” they add.

Pending the release of SATS’ 4Q results, UOB is keeping both its “hold” recommendation on the stock as well as its target price estimate of $4.60 under review.  

As at 4.27, shares of SATS are trading 1.54% higher at $5.30.