SINGAPORE (Feb 10): Maybank Kim Eng is maintaining its “sell” call on SATS with an unchanged price target of $3.76, despite noting a “good quarter” where the gateway and food solutions provider’s core PATMI  came in 14% higher than the research house’s estimate.

(See also: SATS reports 7.4% rise in 3Q earnings to $65.1 mil)

In a Thursday note, lead analyst Derrick Heng recalls how SATS’ 3Q gateway services revenue grew 2.2% y-o-y, which in their opinion, mirrors the positive trends as seen in Changi Airport and SIA’s latest set of results.

(See also: Singapore Airlines 3Q earnings fall 36% to $177.2 mil)

“While SATS’ 3Q is traditionally a strong quarter for cargo volumes, management believes the Hanjin Shipping bankruptcy situation also provided a big boost to air cargo growth in the region. Given a high fixed cost structure of gateway services, it benefitted from operating leverage, as well as higher profit margins,” Heng observes.

However, Heng highlights that the company’s food solutions revenues were soft due to the timing of a large non-aviation catering event, which fell in the earlier quarter, as well as a relative JPY/SGD currency weakness that “eroded an otherwise good performance in [SATS’] Tokyo operations”.

The analyst nevertheless believes that growing its non-aviation business remains a key focus for the company, such as its tie-up with Wilmar for large-scale kitchens in China as well as its joint venture with DFASS for retail inflight and mail-order.

“While these developments are positive, it may take a few years before we see any material profit contribution from these ventures,” he adds.

As at 9.30am, shares of SATS are trading 1.2% higher at $5.04.