Valuation Case Study on

SATS Ltd

Valuation Case Study on

SATS Ltd

Disclaimer and Declaration

The objective of the presentation is for educationalpurposes. The full content of the presentation is forillustration purposes only and should not be used asinvestment recommendations. AB Maximus and itspresenters are not responsible for all investment activitiesconducted by the participants and cannot be held liablefor any investment loss.

The company and presenters may have personal interestin the particular shares presented.

Agenda

Company Background1

Industry Overview2

Valuation3

Risk4

Company Background

SATS Ltd is a Gateway Services and Food Solutions company. Its core businesses are in airport ground services and food

catering.

Company Background

Gateway Services

What is Gateway Services?Includes Passenger Services, Ramp and Baggage Handling, Cargo Handling, Aviation Security, Aircraft Interior Cleaning, and Cargo Delivery and Management.

Major Presence• 75% market share at Changi Airport. • SATS HK.• TFK Corp (Japan). ~50% stake.• SATS-Creuers Cruise Services at Marina Bay Cruise Centre Singapore (MBCCS). 60:40 JV with Creuers del Port de Barcelona S.A. 10+5 year management contract.

Source: Company’s Annual Report FY12/13

Aviation industry is most important

Gateway Services

Baggage Handling Cargo

Security Check In

Gateway Services

Buggy Ramp

Company Background

Food Solutions

Customer Highlights

• Singapore Airlines (SIA) + Major Airlines.• Cruise Catering• Ministry of Defence (MINDEF).• Singapore Sport Hub (21 yr contract).• Home Team Academy.

Source: Company’s Annual Report FY12/13

Primarily Inflight and Institutional Catering

Food Solutions

Inflight Catering

Cruise Catering

Singapore Armed Forces

Singapore Sports Hub

Company Background

�Revenue by Segment (FY12/13)

Food solutions accounts for most of revenue

Source: Company’s Annual Report FY12/13

Company Background

�Revenue by Industry (FY12/13)

Aviation industry accounts for most of revenue

Source: Company’s Annual Report FY12/13

Company Background

�Revenue by Geography (FY12/13)

Singapore accounts for most of revenue

Source: Company’s Annual Report FY12/13

Industry Overview

What Drives Revenue?

Key Operating Statistics• How much cargo moved?• How many passengers handled?• How many meals produced?• How many flights handled?

Source: Company’s Annual Report FY12/13

Most KPIs appear to be up!

Industry Overview

Source: Singapore Tourism Board

Visitor arrivals number is a good proxy for revenue

9.8 10.3 10.1

9.7

11.6

13.2

14.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2006 2007 2008 2009 2010 2011 2012

Visitor Arrivals, in m

illions

Singapore Visitor Arrivals3%

Industry Overview

Summary of SATS Business

�Revenue growth dependent on visitor arrivals, which is likely to slow down.

�Stable business with defensive earnings due to long term contracts.

�Likely to be value stock.

Valuation

�Valuation Methodology

� Discounted Cashflow (DCF)

� P/E Ratio Comparison

� Dividend Yield Comparison

Valuation - DCF

Risk Free Rate (SGS 30-Year Bond Yield) 3.0%

Market Required Return (STI long term average) 10.0%

Beta (from Reuters) 0.64

Cost of Equity (CAPM) 7.5%

Cost of Debt 1.7%

WACC 7.0%

Valuation - DCF

Historical CFO, Capex and FCF numbers

Valuation - DCF

FCF for FY13/14 projected based on pro-rata of historical 1H FCF contribution

Valuation - DCF

2013/14F 2014/15F 2015/16F 2016/17F

FCFF $219 $229 $241 $253

Terminal Value (FCFF2017/r) $36.4

FCFF $219 $229 $277.4

NPV $643.8

Minus Debt $100

Add Cash $492.2

FCFF due to share holders $1036

No. of shares (mil) 1,123.37

Fair Value per Share $0.92Fair value per share at $3.18

Valuation (P/E , Dividend Yield Comparison)

As of 13 November 2013 P/E Div Yield

Average P/E of STI Index 15.73x 2.97%

P/E of SATS Ltd 19.23x 3.62%

Source: finance.yahoo.com

Dividend yield higher as compared with STI indexBUT

P/E rather high as compared with STI index:

Main Risks

�Valuation assumes the following:

� Projected growth in visitor numbers is accurate.

� No major events like war, SARS, etc.

Main Risks

�Default Risk - Low

� Current ratio = 2.75x

� Interest coverage = 66.6x

� D/E ratio = 0.10

� Loans payable within 1 year = $22.6 mil

� Cash = $396 mil

Source: 2QFY13/14 Results

The company is cash-rich.Default risk is low.

Trading Data

52 Weeks Trading Range $2.71 - $3.53

Avg Daily Volume (3 mths) 1.425 mil shares

Market Cap $3864.4 mil

Source: http://www.reuters.com/finance/stocks/overview?symbol=SATS.SI

Technicals Data: 14 Nov 2013Price: $3.21