Well I thought this was a major purchase when you see the share price jump 3-4%. The announcement on yesterday was that SATS Airport services and SATS-Creuers will acquire Singapore Cruise Centre from Temasek.
Announcement here
SATS will effectively own 96.8% of it.
Singapore Cruise Centre have a license to operate for another 14 years. And perhaps it is likely that the license will be extended (not sure if there is a licensing fee to it)
On a revenue of 45 mil and a profit before tax of 16.7 mil the margin comes up to 37%. After a 17% tax rate, the margin becomes 30%.
At a purchase consideration of 101 mil the ROA comes to 12.8% which is very good.
13 mil looks like it will give a healthy boost to profit after tax for the Gateway services division, which is likely where it will go under.
Overall this will give a boost of 6% to profits.
But the bulk of the growth will have to come from tourism growth.
And since you need a license to operate the terminal, this is effectively a monopoly and margins should be protected.
The question is who stands to benefit more, Temasek or SATS. Why the hell is Temasek selling now. Probably a reallocation or the son making noise to ma ma to give him some toy to play with.
SATS have a PE of 17 times or 5.8% yield. That is an unlevered yield, which looks much better than SIAEC (brief look here) at 5.3%.
A look at the 5 year FCF seem to indicate that either management have too much cash and wants to distribute them or a risky way of allocating capital.
FCF is less than dividend paid out if you add up the 5 years (which should smooth out any fluctuations in working capital)
On a Avg FCF/ Market Cap basis, the FCF yield is 4.4%, unlevered.
This deal more or less should boost FCF yield to 4.8%.
Good enough for you? Perhaps you may want to look deeper into it.
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Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.
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