SATS

SATS: Decent operating data for 1Q Apr-Jun 2011. Flights handled +9.8% yoy and services handled grew +7.9% yoy rptvly due to increased flights from both full-service and low-cost carriers. Gross and unit meals produced rose 6.5% and 6.2% rptvly as more meals were being uplifted across all three cabin classes. Passengers handled increased 6.3% to 9.2m while cargo throughput improved 3.0% to 378.6 tons.

Nevertheless, Citi initiates at Sell with TP $2.15. Says its earnings growth forecasts are below consensus by 5-10% for FY12-13E, to factor in
i) limited upside from the LCC-driven traffic boom as growth in Changi has not translated to higher earnings for SATS given the significantly smaller wallet size of the LCC segment,
ii) increased competition from new entrants such as ASIG which could trigger a new round of rates cuts,
iii) rising margin pressures due to a tight employment market and ongoing hikes in foreign worker levies, as well as high raw material (ie food) prices.

Adds, associates earnings could disappoint, on weaker cargo traffic and impact of the Japan earthquake on its newly acquired TFK. Points out that a sub-5% yield (ex-special div) is not compelling vs other local div stocks.