SATS

SATS: Positive implications for SATS as ASIG, Singapore’s 3rd ground handler, terminates contract with Jetstar, its only airline customer. SATS has been reappointed as Jetstar’s ground handler. However, the house believes that the impact is minimal to SATS’s profits. Rather, the strategic implications are bigger positives. Firstly, ASIG’s lack of experience in SG is likely to deter other airlines from switching. Secondly, ASIG could potentially exit the market and this would ease the pressure on rates. Lastly, any exit by ASIG would underscore the difficulty of penetrating the SG market and thus daunting the entry of new players. SATS and Dnata could keep their duopoly and reap the full benefits of Changi Airport’s long-term growth.

However, as air traffic remains weak near term, MayBank KE maintains its HOLD rating with TP: $3.15. This is set at 16x FY3/16 EPS, 0.5 SD above its 10-year average.