Taken from UOB report.. DYODD.

After the sharp share price decline, risk-reward profile of SATS is more attractive.

• Since SATS&rsquo first trading halt related to the WFS deal, SATS share price has declined 33% from S$4.06 before the trading halt to S$2.72 (the closing price on 18 October) this is likely due to the market&rsquo s unfavourable view towards the deal and the weak sentiment towards the equity raising plan. During this period, S$1.5b worth of SATS&rsquo market cap has been evaporated this is equivalent to about 45% of WFS&rsquo acquisition enterprise value of S$3.1b.
• Assuming SATS&rsquo existing business is still worth the value as it was and attributing all market cap drop to the deal of WFS, the market is now effectively valuing WFS at an enterprise value of S$1.6b (being transaction enterprise value of S$3.1b less SATS&rsquo market cap drop of S$1.5b).
• This means, if one buys SATS at the current price, he is effectively paying only 4.9x EBTIDA (based on WFS&rsquo 12- month EBITDA ended Mar 22) for the WFS deal, instead of the original transaction EV/EBITDA multiple of 9.7x. The effective 4.9x EV/EBITDA looks attractive, considering that:
  1. this is pre synergy, and
  2. WFS is the top global air cargo handler.
• In the context of past peer transactions, the implied 4.9x EV/EBITDA valuation of WFS is also very cheap. While SATS&rsquo original acquisition EV/EBITDA of 9.7x for WFS was already not excessive against past peer transactions, the effective 4.9x EV/EBITDA for WFS implied by the current SATS share price is much lower than the historical peer transaction range, usually between 10.1x-10.7x.
• One special case to note is HNA Group&rsquo s previous transaction of Swissport, a Swiss aviation service company of similar size to WFS but focuses more on the ground handling services (which SATS does not want to acquire instead SATS likes the more scalable cargo handling businesses which forms 80% of WFS&rsquo revenue) &ndash HNA Group acquired Swissport back at 2016 at 10.2x EBTIDA but sought for a fire sale a few years later (but failed) after HNA ran into financial distress. HNA&rsquo s fire sale valuation for Swissport was at about 7x EBITDA by our estimate...