SATS

SATS: 2QFY15 profits down 3.3% y/y to $47.1m, bringing 1HFY15 income to $90.4m, in-line with our house estimates but lower than consensus estimates. Interim dividend maintained at 5.0cents. 2QFY15 revenue slipped 2.2% to $442.2m. Contribution from Food Solutions segment dropped 4.7% to $267.7m as the Japan subsidiary was impacted by weaker sales volume (~-9%) as well as a weaker yen (~-6%), and an Australian subsidiary was divested in July 2014. Management highlighted lower average unit meal value for its inflight catering at Changi as airlines across the board cut costs. Otherwise, revenue from Gateway Services rose 2.1% y/y to $173.4m. Operating profit declined 8.8% y/y to $42.5m, margin eroded 0.7ppt as costs continue on the rise. Specifically, staff costs rose 2.4% as tighter manpower policies in Singapore continue to result in rising manpower costs. Share of income from associates and JVs were down 8.5% to $10.8m, brought down by a drop in cargo volume and rate pressure in the market. Improved cargo volume at Changi was the only bright spot. Maybank-KE recommends Sell on SATS with TP $2.70 (up from $2.50) on weak fundamentals (falling volumes, pricing pressure, industry overcapacity) and rich valuation. SATS is currently trading at 17.7x FY16E P/E, rich against its 10-year average of 14.8x, and 2.4x P/BV