SATS

SATS: 1QFYMar13 results. Underlying profit was $41m, +4% yoy, but came in slightly below expectations, due to weaker margins. Revenue grew at a faster 14% yoy to $438m, supported by strong aviation gains. In particular, domestic inflight catering revenues rose 16% yoy on an 8% increase in unit meals produced and higher implied rev/meal. TFK rev surged 41% yoy on the back of robust traffic recovery at the Tokyo airports. Gateway services revenues grew 8% yoy on relatively steady growth in the no. of flights handled. However, cargo/mail processed contracted 5% yoy, and non-aviation food revenues were flat. EBITDA margin slipped qoq and yoy to 14.1%, due to higher staff costs (+13% yoy) on higher headcount, statutory levies, overtime pay and wage inflation. Also, cost of raw materials grew 21% yoy, though generally inline with the rate of food solutions revenue increase. Mgt indicated raw materials cost pressure should continue to ease on lower food prices and SGD strength. Deutsche maintains Buy with TP $3.05, sees positives in the co’s balance sheet strength and ongoing capital return potential. Nomura maintains Buy with TP $2.90. Continues to like the co for its solid yields. Citi keeps at Sell with TP $2.20. Says stock now trading near historical peak levels of 16x FY13e P/E, has run ahead of fundamentals. Notes near term, could be supported by impending payment of a final + special div of 21cts, but price weakness could set in post ex-div on 31 Jul.