SATS to acquire Temasek's Singapore Cruise Centre

SATS could gain $22.5m revenue from acquistion.

According to OKS, SATS announced that it has entered into a share purchase agreement to acquire Temasek's entire stake in the Singapore Cruise Centre.

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This purchase would be through its subsidiaries, SATS Airport Services (SAS) and SATS-Creuers Cruise Services (SCCS).

After the transaction, SAS will hold 92%, while SCCS will hold 8% stake in Singapore Cruise Centre. Taking into account SATS' 60% stake in SCCS, SATS will effectively hold a 96.8% stake in the Cruise Centre, for a cash consideration of SGD106.5m.

SAS has also granted SCCS a call option, to acquire an additional 42.3% of the Cruise Centre, from SAS for SGD46.5m. If exercised, SCCS will hold 50.25% while SAS will hold 49.75% (SATS' effective stake becomes 79.9% for a consideration of SGD87.9m).

SATS plans to fund the acquisition via internal resources. This transaction will allow SATS to grow its gateway services, and enhance efficiencies across both cruise terminal operations.

This would also allow SATS to extend its existing Cruise-Fly and Fly-Cruise products to more passengers.

With this transaction, SATS would be in a good position to compete with regional cruise terminals, to benefit from the growing cruise trends in Singapore and the region. The purchase is immediately earnings accretive. 

Assuming the Singapore Cruise Centre achieves the same performance in FY14 as it did the previous year (FY13 revenue: SGD45m, PBT: SGD16.7m), and that the call option was not exercised, the acquisition could add SGD22.5m and SGD8.4m to our FY14F revenue and PBT estimates, respectively.

While the cruise travel segment would not be a significant earnings contributor, it would still somewhat help to lower SATS' reliance on the aviation sector.