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2 Companies to Watch This Week

A handful of companies and real estate investment trusts (REITs) will be releasing their results for the second quarter of 2019 this week. In a previous article, I highlighted two REITs investors should be keeping close tabs on.

In addition to those, there are two STI component stocks — Keppel Corporation Limited (SGX: BN4) and SATS Ltd (SGX: S58) — that will be giving interim updates this week. Here’s what investors should be focusing on.

Much to prove…

Keppel Corp will be releasing its results on Thursday, 18 July. The conglomerate had a mixed first quarter as the traditionally volatile property development arm experienced lower profit compared to the same period last year, but its offshore and marine segment finally reported an operating profit. Its investment segment also turned a S$49 million profit from a S$44 million loss in the same period last year.

Source: Keppel Corp 2019 Q1 Earnings Presentation

The future does seem more positive, though, with Keppel Corp steering towards higher recurring income as it develops its commercial portfolio, which is estimated to generate annual operating income of S$300 million when fully developed and stabilised. Of the 1.6 million square meters of gross floor area, 50% is still under development.

The company is also in the process of transforming M1 by “redefining” its consumer product offerings, customer experience, and focus on the enterprise segment. If successful, M1 could be another stream of recurring income for Keppel Corp.

The group has set a 15% return on equity target. As of the first quarter of 2019, its annualised ROE was only 7.0%, which shows it still has a ways to go before achieving its goal for this year.

Investors should also keep a close eye on the group’s balance sheet. As of 31 March 2019, its net debt increased by S$3.2 billion to S$8.8 billion. This gives it a net debt-to-asset ratio of 0.72 times, compared to 0.48 times at the start of the year.

Riding on the growing air travel

SATS Ltd provides food solutions and gateway services such as airfreight, baggage, passenger services, and aviation security, among others.

The group has been a steady dividend payer in the past. In the 12 months ended 31 March 2019, SATS’ operating profit and revenue increased 6.0% and 9.1%, respectively. Its return on equity stood at 15.1%, and the company paid out a dividend of 19 Singapore cents per share, a one-cent increase from the previous year.

In the 12 months prior, all operational metrics improved, with the number of flights and passengers handled increasing by 28.5% and 10.3%, respectively.

SATS can ride on significant tailwinds at its back. Passenger traffic in Asia Pacific is expected to grow by 5% annually between 2017 to 2023. SATS also made investments in India and Malaysia, which should boost the group’s bottom line.

SATS will be releasing its quarterly results on Thursday, 18 July.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns shares in Keppel Corporation Limited.