SATS FY14 Result Summary - May 2014

Highlights of the group's result abstracted from the news released by the group:

For the financial year ended 31 March 2014, Group revenue declined 1.8% year-on-year to $1.79 billion. Revenue from gateway services increased 4.5% to $678.1 million due to growth in flights (+9%) and airfreight (+2.6%) handled. Revenue from food solutions dropped 5.2% to $1.1 billion, mainly due to the translation loss on TFK’s revenue arising from the weakening of the Japanese Yen. In addition, unit meal volumes were 5.8% lower due mainly to the shift of Qantas Airways’ transit hub from Singapore to Dubai.

Operating expenditure decreased 0.7% to $1.62 billion and consequently, operating profit fell 11.1% to $171 million.

Share of results of associates/JV, net of tax, declined 10.4% to $47.2 million.

During the financial year in review, the Group made a one-off impairment provision of $2.6 million for assets held for sale. These assets comprise of shares held in a subsidiary and two associates which are under negotiation for potential sale. The Group also benefited from the write-back of prior year tax provision of $6.9 million.

As a result, profit attributable to owners of the Company declined 2.4% to $180.4 million. Excluding the one-off items, underlying net profit from continuing operations was $183 million, 9.4% lower than last year.

The group is proposing final dividend of 8cents and it brings total dividends to 13 cents, 2 cents lower compared to previous year. The dividend yield based on current market price is around 3.8%.

OUTLOOK

Our operating landscape remains challenging in view of rising costs and ongoing pressure on regional aviation. At Changi Airport, we expect moderate growth in passenger traffic and marginal growth in airfreight.

We will continue to leverage our state-of-the-art facilities, comprehensive suite of services and new technologies to obtain scale advantages, improve productivity and enhance connectivity for our customers. We are also growing new businesses and customer segments.

Said Mr Alex Hungate, President and CEO of SATS: "Our FY13-14 results reflect the challenging business environment we operate in, with pressure on the regional aviation industry combined with higher staff costs. However, we are confident in Singapore and the region’s medium to long-term growth prospects and we remain focused on achieving our strategic goals of growing scale and enhancing connectivity as demonstrated by our recent acquisition of 41.65% equity stake in PT Cardig Aero Services in Indonesia.”

My Notes

• Overall business and profit is lower than previous year, part of the reasons was due to challenging business environment, higher staff costs etc. (Jack: higher staff costs partly due to the levies imposed by the government which gave negative impact to various sectors. Changi airport is also competing with many other airport operators to lure more airplanes to stop / transit in Singapore)
• ROE is about 12.8% (still below my preference 15% target) but this is a company with good free cash flow generated. It is suitable for investors who prefer a stable dividend income in long run basis. 
• Trailing Dividend Yield (13 / 337) = 3.85% with trailing PE = 21.0X. I would prefer to buy if the PE could be below 15X to provide a better margin of safety to me. Maybe share price of  below S$2.40 is a better entry price for me.