SATS

SATS: (S$3.86) Acquiring 49% stake in loss-making MAS caterer
SATS has made a offer to acquire a 49% stake in Brahim’s Airline Catering (BACH) from KLSE-listed Brahim’s Holdings for RM218m, half of which would be conditional upon certain targets being achieved.

With the acquisition, SATS will be looking to tap on an inflight catering contract that BACH had recently secured from Malaysia Airlines (MAS). The new catering contract is for a period of five years with a renewal option for additional five years and comes with a 25% lower price tag than the previous one.

Brahim’s owns a 70% equity stake in BACH while MAS holds the remainder.

According to its Bursa filing, Brahim’s reported a 2Q15 net loss of RM6.8m on lower revenue of RM67.1m (-27.3%) as contributions from its inflight catering segment slumped 28.1% to RM64.3m.

The poor performance was attributable mainly to concessions given to MAS after the national carrier was taken over by Malaysia’s sovereign wealth fund, Khazanah Nasional.

SATS will be looking to expand on its operations after its revenue declined 4.2% in 1QFY16 amid a challenging operating environment. However, cost cutting measures helped to buoy a 8.5% gain in core net profit to $47.1m.

More recently, the group announced that all of its operating metrics improved in 2QFY16 with cargo/mail processing being the sole exception. The increases across most of its operations were driven by both full-service and budget carriers.

At current price, SATS is trading at 20.2x forward P/E, and offers a 3.6% dividend yield. The street is neutral on the counter with 3 Buys and 8 Holds ratings and a TP of $3.61, indicating a potential 7% downside.