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Analysts bullish on Sats; Citi keeps ‘buy’ at raised TP of $3.76

Douglas Toh
Douglas Toh • 3 min read
 Analysts bullish on Sats; Citi keeps ‘buy’ at raised TP of $3.76
Sats' WFS consolidation continues to reap benefits. Photo: Sats
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Following Singapore Airport Terminal Services’ (Sats) robust results for 1QFY2025 ended June 30, analysts at Citi Research and DBS Group Research have both kept their respective “buy” calls on the group at unchanged target prices of $3.76 and $3.60 respectively.

DBS’s Jason Sum had previously increased his target price to $3.60 from $3.40 in a June 3 report.

Citi’s Kaseedit Choonnawat, Eric Lau and Amy Han note that Sats’s core profit of $57.8 million in the period formed 30% of the streets FY2024/FY2025 estimates.

They write: “Sequential traffic recovery at Changi and global air freight improvements along with Sats / Worldwide Flight Services (WFS) transformation should continue to drive earnings and share price higher.”

The analysts add that air-cargo demand should see ongoing strength, especially between China and the US, thanks to e-commerce.

“We see potential mid-term upside from Sats’s fresh frozen meal capability, which is yet to become material.”

See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents

Key debate factors noted by the Citi analysts include potential revenue, profit contributions and timeline of Sats’s central kitchen in Thailand, which aims to be of similar capacity to Singapore, as well as organic passenger volume upside from Singapore as Changi Airport’s traffic hovers close to full recovery to pre-Covid levels.

Other factors include the continued performance of Sats-WFS revenue and cost synergies, the air-freight outlook and sustainability of cross-border e-commerce, and lastly, updates to Singapore Airlines C6L

’ contract with Sats.

Conversely, key downside risks include the ongoing consumption shift to services, potentially lasting into FY2024, labour costs pressure, which accounts for around 50% of WFS’ operating expense (opex) per Citi’s estimate, and finally, a global recession dragging airfreight and passenger volume.

See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC

Meanwhile, the analysts at DBS note that Sats’s core profit in the quarter had significantly beat their expectation of $40 million to $50 million.

They add: “Additionally, Sats achieved a significant turnaround in its free cash flow in 1QFY2025, generating free cash-flow (FCF) of $36.7 million, compared to negative FCF of $89.2 million in 1QFY2024, placing the group on track to reduce its net debt by $200 million in FY2025.”

The DBS analysts also note that Sats’s operating margins should continue to strengthen over the next two years, with the group starting to achieve better operating efficiency through economies of scale and enjoying stronger pricing. 

“With Sats also continuing to make more progress in realising operational synergies from WFS, and potentially benefiting from lower interest rates over the next two years, given that a considerable portion of its borrowings are due to mature over the next two years, we are inclined to believe that we could see more positive surprises in the subsequent quarters,” concludes the team.

As at 3.00pm, shares in Sats are trading 36 cents higher, or 11.2% up, at $3.58.

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