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SATS: A nibble while learning from Rusmin Ang.

Wednesday, September 17, 2014

I have shared here in my blog on a few occasions that I am increasing my investments in companies which are going to be less affected negatively in an environment of rising interest rates.

Although interest rates are still low, it stands to reason that they will have to rise in future. When interest rates do rise, businesses and individuals who are heavily leveraged will be the ones to feel its direct impact more severely.




In view of this, one business which I have accumulated a small long position in recently is SATS as its stock price became significantly lower at $2.94 a share upon the counter going XD.

A price of $3.00, give or take a few bids, gives us a PE ratio of almost 19x. Of course, if the company is a grower, then, it might not be considered expensive. Otherwise, I would feel more comfortable buying more if the PE ratio is lower.

Although sometimes SATS pay more dividend per share (DPS) than its earnings per share (EPS), a more normalised payout ratio is 70% of earnings. So, I believe that an annual DPS of 11c is realistic. Based on $3.00 a share, that is a dividend yield of 3.67%. Not anything to scream about.

Technically, there seems to be some support at $2.95. This is probably due to the fact that SATS have been buying their own shares in the open market each time price goes to $3.00 a share or so. Technically, it is also easy to see that if support at $2.95 were to be lost, we could see $2.50 tested.







My friend, Rusmin Ang, at The Fifth Person is hardworking. You might want to read what he has to say after attending SATS' AGM:
12 quick things I learned from SATS' AGM 2014.

Related posts:
1. Portfolio review: Unexpectedly eventful.
2. NeraTel: What is a sustainable dividend payout?

15 comments:

Sillyinvestor said...

Hi AK,

Looks like you have a craving problem, seem you have been a nibbling spree!!

AK71 said...

Hi Mike,

LOL! Yes, I have been snacking late at night and definitely putting on weight. Cham. -.-"

When something is potentially an interesting investment and if the offer price is fair, I am often tempted to sample. Whether I actually do sample depends on how peckish I am feeling. ;p

A small exposure gives me an incentive to look deeper and to more actively monitor the investment. :)

Tigerz said...

AK. people say that insurance stocks would thrive in a higher interest rate environment. I am not sure why (because their collected premium earn better interest????). So perhaps can have a nibble at that as well?

AK71 said...

Hi Tigerz,

In an environment of rising interest rates, I expect financial institutions like banks to do better because of the bigger spread between what they pay savers and what they charge borrowers. That is what simple minded me thinks.

So, I am thinking of getting some exposure to banks in the next bout of market weakness. What do you think? ;)

pf said...

I like thi stock. Had it a few years ago at 2.58 and sold around 3.20. It was a cash cow in my portfolio for 2 years. Lol....

Definitely a stock in my watchlist.

AK71 said...

Hi pf,

In the next bear market, we could see $2.50 tested. In fact, I think it might go lower. So, there will be a better time to be greedy, I think. ;p

Tigerz said...

Hi AK, yes even bank stocks which currently have a high valuation.

AK71 said...

In-flight catering service provider SATS has posted a 3.3 per cent decline in second-quarter earnings. Net profit for the three months ended in September came in at S$47.1 million.

Revenue amounted to S$442.2 million, a 2.2 per cent drop year-on-year. This was dragged lower by an almost 5 per cent decline in revenue at its food solutions business.

Looking ahead, SATS said its operating environment remains challenging, given the ongoing pressures on regional aviation and rising manpower costs.


Source:
http://www.channelnewsasia.com/news/business/singapore/sats-posts-3-3-decline-in/1471326.html

AK71 said...

SATS’ Japanese subsidiary has signed an inflight catering contract with Delta Air Lines worth S$325 million, the Singapore company announced on Wednesday (Jun 24).

The subsidiary, TFK Corporation, is set to commence catering services for the American airline at Narita and Haneda airports in Tokyo by October this year. Delta operates 22 flights from both airports. The airline’s inflight kitchen at Narita will close, following the transition to TFK.

The contract is not expected to have material impact on SATS’ net tangible assets per share and consolidated earnings per share for the current financial year, the company said.

TFK currently serves more than 40 airlines, including Japan Airlines, Singapore Airlines, Qantas and Lufthansa. SATS has a 59.4-per cent stake in TFK.

Source:
http://www.channelnewsasia.com/news/business/singapore/sats-japan-subsidiary/1936490.html

Martini said...

I was looking at SATS in the morning and next moment it announce the deal. But at the current price I don't think it is attractive but definitely one on my watch list. Seems like you haven't been nibbling anything lately. Value harder to find?

AK71 said...

Hi Martini,

The last time I bought more shares of SATS was when its share price dipped below $3.00. Haven't bought any since. At current price, we are looking at a PE ratio of more than 20x. Not cheap.

Recently, I bought more units in Accordia Golf Trust. That's about it, really. I believe that the Japanese Yen will not weaken very much more against the Singapore Dollar from here. Also, the MAS could allow the Singapore Dollar to weaken to stave off deflation. At 70c a unit, Accordia Golf Trust is a fairly good investment for income.

I believe that, at current prices, stocks of companies such as SembCorp Industries, SembCorp Marine, ST Engineering and Wilmar are not expensive. I have the exposure I want already. If Mr. Market should offer meaningfully lower prices, I would probably buy more. ;)

Martini said...

Hi Ak,

Thank you for your sharing. Agree that SATS is not cheap at current valuation and will look for a similar entry level similar as yours. May I know what is your motivation in the interest in Accordia Golf Trust? While I agree with your analysis the SGD will depreciate in the coming months ahead to stave off deflation and other countries currency are all weakening(MYR, IDR etc). While the yield is attractive, does the business itself enjoys any competitive advantage for the long run as the revenue per visitor seems to be going down. Just want to understand your thoughts behind the purchase if you willing.

Regards
Martini

AK71 said...

Hi Martini,

Accordia Golf Trust is one of the market leaders within a fragmented industry in Japan. They have, currently, the largest market share and I believe they are trying to increase this market share which was what led to revenue per visitor decreasing. They are also increasing utilisation of their courses by encouraging more to golf during off peak hours or season. The management seems competent enough.

The Trust plans to acquire a few more golf courses from their sponsor and they will have to be yield accretive in order to make any sense. With its unit price much lower than what it was during its IPO, any sale of assets to the Trust by the sponsor will probably have to be at a much lower price to be yield accretive. I will see if this happens.

There are a few other considerations which suggest to me that Accordia Golf Trust is a relatively safe investment for income and at current price level, the prospective distribution yield is fair enough to compensate for the much diminished risk of further weakness in the SGD/JPY exchange rate.

All investments are good at the right price and, for me, Accordia Golf Trust's IPO price of 97c was not the right price. Well, for the issuer, it probably was. At 74c, I thought it was about right. Any lower than that, all else being equal, would have an even lower chance of being wrong. :)

AK71 said...

The tie-up involves the setting up of a new 6,000-square-metre automated facility at SATS Airfreight Terminal 1 within the Changi Airfreight Centre. It will be called SATS eCommerce AirHub and it is expected to be operational by December 2016.


SingPost will outsource its airport consignment operations located at Changi Airmail Transit Centre 2 (ATC2) to SATS and be the facility's anchor customer, when its lease at ATC2 expires in end-2016.


This collaboration will result in the integration of both SATS’ and SingPost’s airmail consignment operations. The integration will enable single scanning and sorting, and remove the need to tow mail and parcel bags between facilities. This will enhance operational efficiency, including shorter cycle and connection times, and increase productivity.


When fully operational, SATS eCommerce AirHub is expected to achieve a productivity gain of more than 30 per cent, the two companies said in a joint statement.


Source:
http://www.channelnewsasia.com/news/business/singapore/sats-singpost-in-airmail/2055900.html

AK71 said...

"Underpinned by robust balance sheet with free cash flow generated during the fi rst six months amounted to $68.1 mln and low gross gearing ratio of 0.08x, SATS has also declared a higher interim DPS of 6 cents (up from 5.0 cents a year ago), payable on 8 December 2016. The book closure date is 28 November 2016. At 21.8x FY17 P/E with decent yield of 3.6%, we recommend investors to accumulate SATS on any price weakness given its strong fundamentals." --- Lim & Tan Research

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