SATS- Buy calls from Kim Eng, Philips

Just sold my 3 lots of SATS today before noon break @ 2.92
Profit of about $60
Total Profit up till now: $440

Will load again when it hits 2.85-2.88

Back to the topic,

SATS announced on 29 Nov 2010 that they will pay ¥7.8billion
(approximately S$122 million) for a 50.7% stake in TFK Corporation (TFK) from Japan
Airlines (JAL). According to a news report on 15th Sep 2010 from Airportbusiness.com, the original price tag for JAL’s 51% stake was 10bn yen. The price paid by SATS is 22% off the rumored price.

According to the company website, it is stated that TFK
provides 15mn meals annually (as compared to 24.5mn meals by SATS from Oct 09 to
Sep 10) and employs 1,125 employees. They have customers from more than 30
international airlines and operate with its HQ in Narita International Airport & Tokyo
Haneda Airport. TFK was established in 1959. In the same article from
Airportbusiness.com, TFK was reported to have annual sales of 22.5bn yen
(approximately S$351mn) in fiscal 2009. SATS had disclosed that they do not expect
material impact to the earnings and NTA of the Group for the current financial year ending
31 Mar 2011, as the acquisition is expected to be completed in Dec 2010.


Quoted from Philips Securities:

• We do not think SATS overpaid for the stake based on currently available
information.
• No revision to earnings estimates due to lack of information at the moment.
• We view this acquisition positively as it allows for geographical diversification within
the company’s area of competence.
• Estimated 13% increase in share of sales from overseas by FY12E.

Quoted from Kim Eng:


The acquisition, which is still subject to closing conditions, is expected to be
completed before end‐2010. Assuming no change in FY11 and FY12, we
estimate TFK may add about $7m (about 3%) to SATS’ earnings in FY12.
There could be upside to these estimates once SATS gets to work on
integrating TFK’s operations. In addition, the planned revival of Narita and
Haneda international airports, if successful, could boost prospects further.


Assuming SATS uses all‐cash to fund its TFK acquisition, it will still have net
cash of $60m left over. As at September 2010, it had $182m in net cash. In
addition, it has plenty of long‐term credit facilities to tap on, including a
$500m medium term note programme and $200m revolving credit facility,
thus giving it a potential warchest that exceeds $700m. Its existing core
business is highly cash‐generative with a short cash cycle of just a couple of
weeks as well as low capex of $50‐70m pa.



Philips Securities maintains BUY recommendation with target price of S$3.21.
Kim Eng maintains BUY recemmendation with a target price of $3.48.


Youthvestor: Changi Airport may see a third baggage carrier, thus SATS acquisition of TFK allows it to diversify its operations, it could boost its overseas revenue to cover the potential competition in Changi Airport.