Special dividends will keep on coming.
According to Maybank Kim Eng, it believes SATS is gearing up for higher dividend distributions to shareholders after it expressed a goal to optimize its capital structure. The research firm said SATS has a sound cash position to actually push through with progressive increments in dividends in the next three years.
Here's more from Maybank Kim Eng:
Structurally higher dividends. We see a multi-year re-rating of SATS as we believe that the company is likely to structurally increase their dividend distribution to shareholders. SATS announced special dividends in the last 3 years and we expect this to be the new normal. Management had previously highlighted their desire to optimize their capital structure (long run target: net debt to equity of 0.3X), which we view as a signal for structurally higher dividend distributions to shareholders.
Sufficient funding for M&A. Even after factoring in progressive increments in dividends over the next 3 years, we forecast a net cash position of more than SGD400mn by the end of FY16E. This implies that SATS would have a sizeable war chest of c.SGD900mn, should they achieve a capital structure with net debt to equity of 0.3X by the end of FY16E.
TFK Corp on the rebound. SATS offers an exposure to the aviation market in Japan through its inflight catering arm, TFK. The latest results from SATS suggest that TFK had turned a corner with FY13 EBIT contribution of SGD12.1mn (FY12: SGD0.3mn). While the weaker JPY would lead to lower contributions upon translation to SGD, we believe that the positive economic impact of a weaker JPY (eg. tourism, business travel) should result in a net positive effect on air travel demand and TFK. Either way, we expect TFK to continue leveraging on SATS’s existing business relationships with various airlines to clinch more contracts.
Our forecasts are above consensus. We are 8% above street view for our FY14-16E estimates, as we believe that consensus numbers may not have factored in incremental contributions from new contracts and our expectations of margin expansion as they scale up their operations.
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