ANALYSTS SAY: Buy, Sell, Hold (2 June)

UOB KAYHIAN

SATS Ltd

Recovery continued but cost pressure weighs

• FY22 net income back to black
• No dividend was declared
• Beneficiary of borders reopening

Investment thesis
SATS’s FY22 (financial year ending Mar 2022) revenue rose 21.3% year-on-year (YoY) to SGD1.2b, driven by growth in both Food Solutions and Gateway Services revenue. Group expenditure increased 24.4% YoY to SGD1.2b, outweighing the growth in revenue, largely due to lower government grants and higher staff and
raw materials costs. FY22 net profit attributable to shareholders (PATMI) came in at SGD20.4m, as compared to a loss of SGD78.9m in FY21. Excluding the impact of government relief, PATMI would have been a loss of SGD112.2m in FY22. Group operating statistics continued to improve on a quarter-on-quarter basis in 4QFY22 as international borders reopen. As capacity and scale ramp up, we expect revenue to further improve and the operating cost to normalise over time. Nevertheless, we continue to see SATS as a beneficiary of global borders reopening, a gradual recovery of air travel, and strong cargo performance due to e-Commerce demand. We revise our estimates on recovery trajectory and cost estimates, hence our fair
value estimate increases from SGD4.77 to SGD4.94.

STRATEGY – SINGAPORE

Alpha Picks: Add Frencken And Lendlease REIT, Remove Singtel And Singpost

Our Alpha Picks outperformed the STI by 0.8ppt in May 22, declining by 2.9% mom vs
the STI’s decline of 3.7%. For Jun 22, we add Frencken due to its attractive valuations and Lendlease REIT due to its organic growth from its new asset Jem. We hav removed Singpost due to persistently high air freight rates. In addition, we have taken profit on SingTel as it has been a solid contributor to our portfolio performance.

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UOB KAYHIAN

UOB KAYHIAN

STRATEGY – MALAYSIA
1Q22 Results Wrap-up

Stocks under our coverage posted a moderate earnings beat in 1Q22, led by upgrades for the banking and commodity sectors. Tactically, we position for trading gains as the global equity markets are seen to be entering a reprieve/recovery phase. Nevertheless, we do not embrace a scenario of a prolonged global stagflation and retain some growth- and event-driven companies among our top picks.

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STRATEGY – CHINA
Alpha Picks: June Conviction Calls

Work resumption in Shanghai and increased government support for the economy should help lift sentiment on Chinese equities in June. But the Fed’s tightening remains an overhang for global equities which may lead to continued volatility and cap the upside. We are cautiously optimistic on the removal of COVID-19-related curbs and add CR Beer, Sunny Optical and Trip.com to our BUY list. 

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Automobile – China
Weekly: Halving Of PV Purchase Tax Rate Bigger Than Expected

The state announced plans to cut purchase tax rate for most PVs by half to 5% from 1 Jun 22 to 31 Dec 22, which is better than expected. There is no subsidy for EV purchases in rural areas, as opposed to the rumoured Rmb3,000- ,000/vehicle in subsidies. Shenzhen and Shanghai announced that they will give Rmb10,000/vehicle in purchase and trade-in subsidies for EVs, and raise the quota on new car plates by 20% and 40% respectively. Maintain OVERWEIGHT. Top picks: BYD, GWM and Geely.

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STRATEGY – THAILAND
Alpha Picks: June 22 Portfolio

The SET was slightly lower at end-May 22, due to a combination of factors which weighed on sentiment, including: a) tightened lockdowns in China, b) inflation worries, and c) the prospect of substantially tighter US monetary policy. For Jun 22, we take profit on BEM and TOP and cut losses on SPALI, while adding CPF, CPN and VGI to our list. Maintain BUY on AMATA, BBL, CPALL, MINT, MTC and OR. 

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