SATS flies 7% more passengers in 2QFY12

Handling more flights. SATS released its operating data for 2QFY12 (Jul-Sep), and the statistics still looks encouraging. It handled 11.4% more flights YoY, and 7.0% YoY more passengers, despite weaker global economic outlook. This was largely attributed to the fast growing low cost carriers (LCC) segment, which outpaced that of full-service carriers. LCC generally do not require in-flight meals, which also contributed to the slower growth of 5.6% YoY in gross meals produced.

Higher volume in the second quarter. On a QoQ basis, aviation business volume continued to rise. The number of flights handled was up 3.4% QoQ, as gross meals produced rose by 4.2% QoQ. The QoQ rise in volume of unit services, flights and passengers handled was greater in 2QFY11, as compared with that in 2QFY10, likely due to recent growing interest in budget flights.

In fact, the rate of increase in gross meals and unit meals produced slowed, another indication of the rising popularity of low-cost flying. A weaker global economic outlook, coupled with a stronger S$ contributed to the flat growth in cargo processed (weaker exports) (YoY: 0.3%; QoQ: 0.1%).

Volumes could slow down. Growth in passenger travel and freight volumes could possibly slow down, as the global economic uncertainty may result in businesses and travellers cutting back on travel/holiday plans. We continue to like SATS for its steady dividends. There is also a possibility of special dividends from the sale of its UK business, if that goes through. Maintain BUY with TP of S$2.53, based on DCF.