SATS outperforms the market by a quarter

It is expected to generate 14% ROIC by next year.

SATS has outperformed the STI by 40% in 2015 and 24% as at November 30 this year. UOBKayHian expects it is likely to market-perform in 2017.

According to the research house, te outperformance can be attributed to SATS’ strong cash generation and strong balance sheet, relative to other industrials which have higher gearing.

Future outperformance, it said, will likely be driven by stronger-than-expected throughput growth at Changi and earnings growth from JVs and associates.

"On balance, we believe SATS is likely to market-perform as most of the positives have been priced in. Its strong balance sheet will continue to draw interest even amid relatively lower dividend yield," it explained.

Here's more from UOBKayHian:

SATS’ ability to generate ROIC in excess of its cost of capital was one of the key reasons for its outperformance vs the STI over the past two years.

We expect the firm to generate a ROIC (Return of Invested Capital) of 14% in FY17.

SATS is also re-investing capital into its JVs and associates as well as increase automation in an effort to reduce the reliance on labour.

We believe this could boost operating efficiencies and drive growth over the long term. For FY17, we estimate SATS will re-invest S$73m in capital into its business.