Margins expected to come under pressure: DMG & Partners Research

Below is the highlight from DMG's research note on SATS May 20, 2011.

Achieves good growth in 4QFY11. SATS achieved 4QFY11 PATMI growth of 9.0% YoY to
S$50.7m, in line with our expectations. This was on the back of a 29.3% YoY increase in
revenue. Included in 4QFY11 revenue was consolidated revenue from TFK, its newly acquired
Japan subsidiary. Excluding TFK’s contribution, 4QFY11 revenue would have improved 10.7%
YoY to 432.3m. If we were to strip out the jobs credit received in 4QFY10, PATMI would have
risen 18.7% YoY. SATS declared dividends of 17 S¢/share (including special dividend of 6
S¢/share). This translates into a yield of 6.4%. Amidst the current inflationary environment, we
think the improving Asia economy would provide some support for the aviation industry. As we
roll forward our earnings, our DCF-based TP is S$2.98. Maintain BUY.

In challenging times. While the recent disasters in Japan may have put a slight dent in the
recovery of the aviation industry and the performance of its Japan subsidiary, management is
optimistic that it would not have a material impact on FY12. On top of that, rising food costs and
labour costs would place further pressure on margins. This could dampen earnings growth.

Maintain BUY; lower TP. We have largely kept our earnings estimates for FY12 intact, taking
into account the improving Asian economy and better contributions from associates, amidst
rising food prices and labour costs. Hence, our margin projections have been lowered. We are
estimating earnings growth of 6.8% to S$204.6m for FY12. As we roll forward our earnings,
based on DCF, we have a revised TP of S$2.98 (previously S$3.25). Maintain BUY.