SINGAPORE (Jan 11): OCBC Investment Research is downgrading SATS back to “hold” while raising its fair value to $5.34 from $5.23 previously, after updating its cost of equity (COE) assumptions to factor in its latest share price rally.

This is because the research house sees diminishing upside in the near-term post SATS’s recent price appreciation, considering how trade tensions and weaker sentiment have impacted emerging market (EM) currencies and trade volumes.

To recap, SATS’s share price has risen by 6.2% to its Jan 10 closing price of $4.94 since OCBC upgraded the stock to “buy” last year on Nov 29.

This translates to a forward P/E of 20 times, which is close to SATS’s historical average over the last five years and implies a forecasted dividend yield of 3.9%.

In a Friday report, analyst Low Pei Han notes that operating statistics have been mixed for Changi Airport over Nov 2018, reflecting weaker growth figures compared to that of Jan-Nov 2017 versus 2016.

“Traffic growth at Changi Airport has a direct impact on SATS as we estimate SATS to handle about 80% of the traffic throughput there. In the longer term, the addition of Terminal 5 to Changi Airport (construction to begin 2020) will benefit SATS since it is the dominant ground handling provider at Changi Airport,” says Low.

“Competition in the airline industry may also continue to result in pricing pressures on SATS, though the lower oil price is a near-term reprieve for the industry,” she adds.

As at 10.35am, shares in SATS are trading flat at $4.94 or 21.7 times FY19F earnings.