SATS

SATS's stock is done with taking a beating. Investors are buying into this stock, making it the top gainer in the Russell Singapore Value Index last week. But can this rally be sustained, or will the counter become a victim of any market pullback again?

Actually, that is a question a punter would be more interested in.

Investors like you and me care more about the fundamentals. And the fundamentals don't look too good for SATS. Its business is affected by higher operating costs while its overseas joint ventures are not very profitable. The only thing going for it is its high dividends.

But let us look at this company's ratios first.

Despite the stock losing over a dollar this year, its P/B of 1.31 is a bit too expensive. It gets a cross here.

Its P/E, though, is cheaper. It stands at 9.96. That gets it a tick.

It paid out a total dividend of 14 cents last year. That's a yield of 8.4%. It gets a tick here for exceeding our minimum requirement of 2%.

The company has been maintaining a positive cashflow over the past few years. It has a free operating cash flow of S$75.5 million, money that it has left over after reinvesting in itself. For its positive cash flow, it gets a tick here.

An investor throwing a casual glance at the company's recent earnings statements might not like this company. And this is due to it suffering from lower profit margins, which is caused by higher operating costs from fuel and food.

And there's no immediate reprieve as SATS expects costs to rise further. Still, this is a problem that is affecting a lot of other listed companies.

Profit contribution from its overseas associated companies was down in FY2007 due to its Hong Kong and Beijing associates making less profits. And in its latest Q1 report, profit contribution went down again. This was due to tax provisions and its overseas companies suffering from higher costs and lower meal volumes. What is worrying about the reports is the consistently bad performance of SATS's overseas joint ventures.

Management gets a question mark here because the company is not doing too well at the moment. Even though it is suffering from higher operating costs, which is the bane of every company out there. SATS faces domestic competition, even though one of its competitors, Swissport, is not doing well too. This leaves CIAS, which is probably on par with SATS. But no matter what, SATS's association with SIA and its longer operation history count for a lot.

Perhaps the only bright spark an investor can see in SATS would be its dividend policy. It gave out its biggest single dividend payout of S$0.10 last year, or 77% of its net profit. A yield of over 8% is an attractive proposition indeed. But only if the company gets its operations, both local and overseas, in order.

To recap,
SATS’s P/B of 1.31 gets it a cross.
Its P/E of 9.96 gets it a tick.
Its yield of 8.4% gets it a tick.
Its positive cash flow also gets it a tick.
Its management gets a question mark.
SATS is one of the 98 constituents on the Russell Singapore Value Index.

Please seek professional advice before making any investment decisions.

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