Will flagging passenger yields sink SATS' growth in 2016?

It's banking on passenger throughput, aircraft traffic.

Despite the expected drop in passenger yields this year, analysts see steady growth is on the horizon for SATS Limited’s (SATS) thanks to robust visitor arrivals to Singapore and strong traffic at Changi Airport for the period January to April 2016.

According to a report by OCBC, for Jan-Apr 16, Singapore Changi Airport posted strong traffic statistics as passenger throughput spiked 9.7% YoY and aircraft movements jumped 5.2% YoY.

Moreover, the Singapore Tourism Board reported that visitor arrivals by air grew 13.5% YoY through the same period. This is thanks mainly to a 40.8% spike in visitors coming from China. In addition, the period saw a 28.6% surge in visitors from Thailand, and a 13.1% jump in Indonesia visitors.

OCBC believes that though passenger yields are flagging, loads are anticipated to surge ahead. This is on back of growth in aircraft fleet size in the region as well as the burgeoning middle class in developing countries fueling growth in air travel demand.

“All said, with management guiding for sustainable growth in dividend payout similar to trend seen between FY14 and FY16, we believe SATS is currently fairly valued based on our unchanged DDM-derived FV of S$4.20,” OCBC asserts.

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