MARKET PULSE: Telco Sector, SATS (25 May 2012)

Stock Name: SATS
Company Name: SATS LTD.

Research House: OCBC

Price Call: HOLD

Target Price: 2.55

MARKET PULSE: Telco Sector, SATS

25 May 2012

KEY IDEA Telcos: 1QCY12 Review - OVERWEIGHT All three telcos recently reported 1QCY12 results which were in line with our forecasts. Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by the increasing mobile data usage and also the NBN roll-out which is nearing completion. However, EBITDA margin outlook continues to remain fairly muted; and any boost from LTE is not likely to materialize substantially in 2012. Nevertheless, thanks to their strong cashflow-generative businesses, the telcos have kept their dividend payout guidance, thus keeping their yields attractive. With the exception of StarHub (+11% YTD), the other two stocks have underperformed (M1 -1.6%, SingTel -0.6%) versus the STI's 5.2% gain. But with markets likely to remain volatile, we believe that the telcos' defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors. Maintain OVERWEIGHT. Our pick in the sector is M1. (Carey Wong) MORE REPORTS SATS Ltd: A reasonable start to FY13 Changi Airport Group's recently announced that passenger movements at the airport increased 13% YoY to 4.2m in Apr 2012, on the back of a 9% YoY climb in aircraft movements to 26,410. However, air freight volume fell 5% YoY to 148,243 tonnes. The strong passenger and aircraft numbers bode well for SATS Ltd (SATS) going into the first month of FY13. Separately, lower freight volume in Apr 2012 at Hong Kong International Airport indicates that SATS' share of associates' profit is likely to remain depressed. Also, the Marina Bay Cruise Centre Singapore (MBCCS) will welcome its first cruise ship on 26 May 2012. The Royal Caribbean International's Oasis-class Voyager of the Seas can only dock at MBCCS in Singapore due to its size. However, MBCCS is unlikely to see meaningful contribution to SATS' financials in the foreseeable future. We maintain our fair value estimate of S$2.55/share and HOLD rating on SATS. (Eric Teo)

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NEWS HEADLINES - US stocks closed mostly higher after comments from the Italian Premier increased confidence that Greece would stay in the euro-zone. The S&P 500 Index and the DJIA climbed 0.1% and 0.3% respectively. - The Hour Glass posted a record FY12 PATMI of S$54.7m, a 29% jump. Revenue increased 17% to S$607m. - PSL Holdings has secured two foundation engineering contracts worth almost S$24m; one at the Yale-NUS College, and the other for the expansion of an oil plant in Jurong Island. - A wholly-owned subsidiary of Fragrance Group has acquired freehold property Novena Ville for S$131.5m via a tender bid. The property is zoned for residential with commercial at the first storey. - Global Premium Hotels is purchasing Fragrance Heritage Pte Ltd (FHPL) from Fragrance Group Ltd for S$25.1m. FHPL's assets comprise a development site at Tyrwitt Road and bank deposits. - Sky China Petroleum Services, along with its partners, is acquiring Hisaka Holdings Ltd in a reverse takeover deal valued at S$192.5m. Both are Singapore-listed companies.