SATS

SATS: Citi maintains Sell with $2.20 TP. House note that YTD, SATS has gained 21%, outperforming the STI (+9%), possibly benefiting from anticipation of a special dividend (now confirmed at 15c/share). While the stock price may remain supported ahead of the ex-div date (end July), it is worth keeping an eye on current valuations. Based on the current price of $2.61, and less the 21c (final + special) due to be paid, the stock trades at a fwd P/B of 1.9x (FY13E BPS S$1.28). This appears rich against a corresponding ROE of 13.3%, and may only be sustainable if co is able to engineer a re-rating of its ROE back to the mid-high teens level. While recent initiatives (TFK acquisition, ICT win) should add incremental value over time, such a significant ROE uplift is probably only achievable through acquisitions of meaningful scale, financed with borrowings; Mgt is willing to gear up to 0.3x net-debt equity, if suitable opportunities arise. House revised TP of $2.20 (prev S$2.00) incorporates slightly higher earnings estimates as well as higher growth rate as we expect margin pressure to ease slightly on tighter headcount mgmt as well as moderating food prices.