Excluding government benefits, we estimate net profit of $134m, in-line with our expectations of $132m. Reported net profit of $147m included $12.3m in economic relief measures and $5m in after-tax contributions from a 2-month consolidation of SFI. Excluding SFI and the Budget aid, we estimate net profit fell 33% yoy to $130m. The results also included a $10.8m loss on disposal of investments, $15m in T3 costs not present in FY08 and $6m in other one-off provisions for employee benefits.

After acquiring SFI, SATS ended FY09 with $278m in cash, down from $700m the year before, and net cash of $47m vs $537m. Although SATS is likely to repay $200m in medium term notes due in Sep 2009, we project a higher end-FY10 net cash of $62m, even after assuming a $0.12/share dividend (FY09: S$0.10). We do not anticipate any cashflow difficulties as both SATS and SFI are richly cashflow generative.

SFI net profit fell an estimated 40% yoy to $7.5m in the full quarter. As revenue appears stable - Singapore estimated to have risen 10% to $72m from 65m a year ago while UK revenue likely fell 7% to $93m from $101m – there could have been a forex impact and likely some margin loss from the UK recession. However, we understand that Daniels, its chilled foods subsidiary, is gaining market share among the UK supermarkets and has added new accounts such as Marks & Spencer.

The Influenza A flu panic appears to have moderated, with Singapore recently downgrading its national alert from orange to yellow. Damage to airline travel may not be as bad as feared.

As the reason behind our downgrade of the stock is now abating, we reinstate SATS back on our shopping list. Although the stock has surged in the last few weeks, we reckon there is still upside. We peg our target price to $2.04, or 13x our FY10 forecast, based on the average long term valuation of SFI. The acquisition now seems like a blessing in disguise as it will allow SATS to buffer against the worst of the recession and the impact of the flu outbreak. Also, another overhang has been eliminated as it recently renewed its service contract with SIA for another 5 years at the same terms.