SINGAPORE (June 16): OCBC is maintaining its “hold” rating on SATS, recommending investors re-engage the stock at $4.70 or lower with a target price of $5.12.
Given the huge market size in China and the rising demand for safe food distribution, OCBC sees growth potential for SATS as it strengthens its position through the restructuring of its JV in China.
It was in April when SATS and Charoen Pokphand Group (CP) announced they will own 35% and 65% stakes in Jilin Zhong Xin Cheng Food (Jilin JVCo) respectively.
Last week, SATS announced that Singbridge will also participate in the investment in Jilin JVCo through a JV agreement with SATS.
Jilin JVCo was established in 2010 to develop and operate a large scale integrated pig farm with abattoir and feed production facilities in Jilin Province, China.
With the latest update, CP will continue to own a 65% direct stake in Jilin JVCo while SATS and Singbridge will participate through their SGIPF’s 35% stake in Jilin JVCo.
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SATS and Singbridge will hold 60% and 40% of SGIPF, respectively.
Under this structure, SATS’ effective stake in Jilin JVCo will be cut to 21% from 35%.
In a Friday report, lead analyst Eugene Chua says while SATS’ effective stake is reduced, having two strong strategic partners on board is certainly positive over the longer-term.
Singbridge is experienced in investing into China, and has an ongoing project with the Jilin City Government to develop a sustainable model food zone in Jilin tailored for quality and safe food production in China and the region.
CP, on the other hand, has a vertically integrated feed to farm to food operation business with extensive distribution network providing safe food to consumers.
“Coupled with SATS’ expertise in operating efficient central kitchens, we believe the three partners will be able to tap on each other’s expertise to grow the Jilin JVCo sustainably, providing safe food, which is likely to be in high demand given growing focus and awareness on safe food supply,” says Chua.
Shares of SATS are down 1 cent at $5.07.
