Compiled by Kenneth Lim
SATS | BUY
TARGET PRICE: $5.40
SEPT 28 CLOSE: $4.65
UOB Kay Hian, Sept 28
We believe that the street has not appreciated Sats' superior scale for both catering and ground handling and its ability to prevail in the event that a pricing war continues.
Sats also handles about 144,000 flights versus Dnata's 40,000. Dnata's CEO reportedly stated that Sats has been aggressively cutting prices and that this has impacted Dnata's profits.
With increased investment in automation, a significant part of marginal revenue increase from cargo handled will flow through to operating level.
This is the main reason for Q1 FY16's 6 per cent rise in core operating profit.
We believe the next two quarters will see similar operating leverage due to seasonal demand.
In addition, as cargo yields improve, there is a possibility that pricing on cargo handled could see a similar increase.
As pointed out in our earlier note, this will not only impact Sats' local operations but will also positively impact its associates.
We remain bullish on Sats, despite the 4.6 per cent year-to-date decline in stock price.
We also believe that the pullback is symbolic of a typical correction following the whopping 26 per cent gain last year.
Changi's data points, as well as good cost control, augurs well for Sats' earnings.
In the near-term, the commencement of apron services to AirAsia in July and catering services to Jetstar Asia last month will boost Q2 FY18's and Q3 FY18's earnings.
COMFORTDELGRO CORP | HOLD
TARGET PRICE: $2.15
SEPT 28 CLOSE: $2.04
CIMB Research, Sept 28
Current share price implies the halving of ComfortDelGro's (CD) taxi margins is priced in, but the stock lacks longer-term catalysts.
Dividend yield and net cash cap share price downside.
News of CD drivers being enticed by Grab to become its taxi driver partners or join its private-hire car service resulted in CD share price falling to current levels.
Headwinds in the taxi segment could persist but a successful Uber tie-up could breathe new life into CD's small divisions and level the industry's playing field.
Earnings-accretive mergers and acquisitions and a higher dividend payout could rerate the stock.
Maintain "hold", with a lower discounted cash flow-based target price of $2.15.
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