Six things that could potentially result in lower margins for SATS

Declining airline yields is one.

After SATS reported a 7.4% increase in core profit for the past quarter, OCBC Investment Research noted six things that can potentially result in lower margins for the group.

For one, falling yields of airlines could translate to pricing pressure for SATS. Also, non-recurring items recognised this year will be difficult to exceed in FY18 from just increasing productivity.

There is also the lower government subsidy of staff costs, as well as the cessation of franchise fee rebates with effect from 1 April 17.

Margins will also be affected by higher depreciation as capex is expected to continue to increase, as the rest of the costs rise in line with the growth of the business.

"Hence, we believe near-term growth will moderate along with margins under pressure. Over the longer term, along with the growing capacity of Changi Airport, we continue to expect SATS’ strategy of diversifying out of Singapore through partnerships and/or M&A activities to drive positive growth," OCBC Investment Research said.

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