SINGAPORE (Sept 29): OCBC Investment Research is keeping SATS on “hold” with an unchanged fair value estimate of $4.70 as it believes that SATS’ near-term positives have already been priced-in.

This comes after Singapore Changi Airport on Tuesday posted a 0.6% y-o-y decline in passenger throughput for August, even as aircraft movements grew 2.2% y-o-y and air freight movements grew 7.6% y-o-y.

“We think Aug 16 statistics showed indications that traffic growth at Changi Airport may be slowing down,” says OCBC lead analyst Eugene Chua in a Wednesday report.

As a key service gateway services and food solutions provider at Changi Airport, which accounts for around 80% of market share, SATS revenue from Singapore is closely tied to traffic handled at the airport.

Chua points out that Singapore Tourism Board statistics also show that year-on-year growth in visitor arrivals from North Asia has been on a downward trend since April.

(See Fall in SIA’s passenger traffic is bad news for SATS, SIA Engineering)

“In our view, SATS’ on-going plans to diversify out of Singapore and away from reliance on the aviation industry will take time to bear fruit, and unlikely to see material results in the near-term,” Chua says.

However, SATS’ efforts to improve productivity are already starting to bear fruit, he adds.

SATS in August announced that it is investing $18 million in a new production line that would enable mechanisation of up to 50% of certain kitchen operations and increase its airline catering capacity to 115,000 meals a day.

(See SATS to invest in $18 mil automated production line)

“We think the near-term positives [such as] continuous productivity improvement efforts and strong but tapering growth at Changi Airport are priced-in with SATS trading at a rich valuations of 22x FY17F P/E,” Chua says.

That said, the research house says it is “still positive” on SATS’ long-term growth, and recommends looking for buying opportunities when its share prices falls below $4.40.

SATS closed 0.4% lower at $4.95 on Wednesday.