Key Research Idea

SATS Ltd (SATS SP) – Accelerating capital investments

SATS’s 2QFY22 revenue grew 27.2% YoY to SGD293.9m, supported by stronger cargo and non-travel food performances. PATMI improved from a loss of SGD33.2m a year ago to SGD6.8m (+6% QoQ), which came in below our expectations. Excluding the impact of government relief, core PATMI would have recorded a loss of SGD30.1m. No dividend was declared, similar to 2QFY21. Management guided that SATS needs to be profitable and generate positive cash flow without government relief before they would consider resuming dividend distribution. During SATS’s Capital Market Day, management shared that they plan to spend SGD1b of capex and investment over the next 3 years to expand SATS’s business and achieve revenue target of SGD3b in FY25. Assuming a full recovery in aviation, management hopes to see the revenue split by travel and non-travel business to reduce to 65% and 35% respectively (vs. 86%/14% for travel/non-travel in FY19). After adjustments, we maintain our fair value estimate at SGD4.80. BUY(Chu Peng)


Research Ideas

Sembcorp Industries (SCI SP) – Doubling renewables portfolio in China

Sembcorp Industries (SCI) is a leading energy, water and urban development group operating across five continents worldwide. With a turnaround due to the de-merger with Sembcorp Marine, SCI’s key financial metrics such as ROE will turn for the better, but we would be even more encouraged if improvement in the future were to be driven by a fundamental pick-up in the utilities space. Successful execution of its renewables strategy provides further scope for re-rating, though good assets may not come cheap currently. BUY(Research Team)

Farfetch Ltd (FTCH US) – Constructive on potentially deeper partnership with Richemont

Farfetch is the global luxury fashion industry’s leading technology platform, as it operates the only online luxury marketplace at scale and is increasingly solidifying its position as a key innovation partner in the luxury industry. We believe Farfetch will benefit from increasing online penetration in the global luxury market, growing popularity of the e-concessions model, and strong partnerships which enable the company to increase its exposure to the Chinese consumer. BUY(Research Team)


Singapore Exchange Ltd (SGX SP) – Staying focused on its core strategies

Operating an integrated securities and derivatives exchange across different asset classes. SGX is the leading securities market in Southeast Asia, exchanging trade stocks and bonds, ETF, warrants, derivatives and infrastructure funds. As of FY21, the Equities segment contributed ~66% to total revenues, while Fixed Income, Currencies and Commodities (FICC) and Data, Connectivity and Indices (DCI) contributed 20% and 14% respectively. Looking ahead, the company expects FICC and DCI to be relatively faster growth areas. SGX has a progressive dividend policy (FY21 dividends of 32 cents/share was raised from FY20’s 30.5 cents/share) and is introducing a scrip dividend scheme in FY22 with 0-3% discount range guided, to provide shareholders with an option to invest their cash dividends in shares. While we are positive on its various initiatives to broaden its revenue streams, time will be needed to execute its plans, while near term concerns include the increased  competition in the China A50 equity derivatives space. HOLD(Research Team)


Singapore Airlines (SIA SP) – Net loss narrowed in 1HFY22

Singapore Airlines’ (SIA) 1HFY22 results came in broadly in-line with our expectations as we expect a stronger 2HFY22. Revenue improved 73% YoY to SGD2.8m, supported by stronger passenger and cargo performances. PATMI loss narrowed by SGD2.6b YoY to a loss of SGD837m in 1HFY22. All passenger airlines reported lower operating losses in 1HFY22, benefitting from expanded passenger capacity and network on the back of Vaccinated Travel Lanes (VTLs). Cash burn has reduced from SGD100-150m per month in 1QFY22 to SGD 18m in 2QFY22, which is approaching the breakeven level and is likely to reduce further as the operating environment improves. While we see a gradual recovery ahead as vaccination rates pick up and the expansion of VTLs, SIA is likely to remain in losses for FY22 as the daily quota for the VTL scheme remained significantly lower as compared to pre-Covid-19 levels. Valuations do not look attractive with forward P/B trading at its historical peak levels of 1.4x. We fine-tune our estimates, and consequently, increase our fair value estimate from SGD4.90 to SGD5.08 based on a P/B multiple of 0.9x. HOLD(Chu Peng)


Sembcorp Marine (SMM SP) – Likely more clarity in 1Q22

Sembcorp Marine is one of the global leaders in rig building, offshore platforms and specialized shipbuilding and repairs. The group is pivoting to renewable energy solutions and recently won the first significant contract after a drought in 2020. Looking ahead, we expect news of more order wins but investors are advised to look beyond the headline numbers for Sembcorp Marine’s share in a consortium contract, as well as the margins behind it. Still, order wins will keep the yards utilised and burnish the group’s track record in the renewable space. Losses are still expected for the group going forward, based on its current orderbook, as well as execution challenges due to disruptions brought about by Covid-19 and supply chain constraints. HOLD(Research Team)