SATS upgraded to Buy by OCBC on automation moves, air-travel growth

Singapore two-dollar bills

OCBC upgraded SATS to Buy after the stock’s recent correction, pointing to its automation efforts and growth in air travel.

“SATS is poised to benefit from growth in global air passenger and cargo volumes along with increasing demand for travel and related services,” OCBC said in a note on Tuesday.

In addition, the company has been developing automation and other technology to increase its productivity and reduce its reliance on labor, OCBC noted.

It pointed to the August 2016 investment in a new production line to enable mechanization of up to 50 percent of some kitchen operations to meet increased demand regionally. It also noted the April 2017 launch of the eCommerce AirHub, which was a S$21 million facility co-funded by CAAS to enhance the mail sorting capability of Changi’s eCommerce operations.

“The group has been systematically deploying technology to different parts of its business and is now focusing on gateway services and ground handling services,” OCBC said. “For instance, SATS is testing a remote-controlled vehicle that can collect luggage from a plane and move it to the baggage handling area in as little as 10 minutes.”

The shares are trading at around 20.5 times forward price-to-earnings, OCBC noted, with 20 times marking the stock’s lowest since August 2016.

It also noted that the dividend has increased by S$0.01 a share each year to S$0.18 a share in fiscal 2018 from S$0.13 in fiscal 2013.

“The 3.85 percent dividend yield is also decent with growth prospects,” OCBC said.

It kept its fair value unchanged at S$5.39.

Shares of SATS were down 0.81 percent at S$4.89 at 13:36 SGT.

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