SATS

SATS: Reported 1QFY15 results which came in below expectations, with underlying net income of $43.4m (-9.4%). Top-line revenue was flat at $435.2m, with the 0.9% decline in Food Solutions revenue offset by the marginal improvement in Gateway Services sales (+2.0%). Incremental contribution from a higher stake in PT CAS was also not sufficient to offset air cargo weakness, leading to significantly lower contributions from its Associates at $10.4m (-16.8%). Despite efforts to reduce headcount, EBITDA margins continued to slide due to higher staff cost (+3.0% y/y). Incremental contribution from a higher stake in PT CAS was not sufficient to offset air cargo weakness, leading to significantly lower contributions from its Associates (-16.8% y/y). The negative impact on its bottom-line could have been even more severe, if not for the 14.6% YoY reduction in depreciation charge from a change in accounting policy. On the bright side, aviation statistics at Changi Airport were stable with SATS gaining a larger slice of its air cargo market. Overall, Maybank-KE is downgrading the counter to Sell from Hold, as the house cut its FY15-17E EPS by 8-9% to reflect the disappointing set of results and forecast a 4.5% earnings contraction in the year ahead. The house believes that the market will increasingly look to price SATS on earnings as it struggles to contain escalating costs in the near term.