The analysts at Citi Research, OCBC Investment Research (OIR), UOB Kay Hian (UOBKH) and DBS Group Research have maintained their “buy” calls on SATS following the release of the ground handler’s 4QFY2024 results ended March 31.
While Citi Research and UOBKH have maintained their target prices of $3.01 and $3.22 respectively, OIR’s Ada Lim has upped her target price by 22 cents from $3.09 to $3.31 after revising her estimates. DBS’s Jason Sum has also increased his target price by 20 cents to $3.60 from $3.40, making him the most bullish among his peers.
SATS’s results for the 4QFY2024, based on Sum’s estimates, was a “solid beat” while its FY2024 net profit surpassed the street’s expectations by 14%, the analyst writes in his June 4 report.
The group’s FY2024 revenue nearly tripled to $5.1 billion, beating Sum’s forecast by 1.7%.
Its full-year patmi stood at $56.4 million while core patmi, excluding one-offs, stood at $78.5 million.
He notes that the company’s business momentum continues to be “robust” amidst travel recovery and a rebound in global cargo volumes.
“Encouragingly, SATS’s heritage (SATS’s standalone ground handling + cargo) revenue rose by 4.2% q-o-q as the segment handled higher cargo and flight volumes on a sequential basis. On a y-o-y basis, flights and cargo handled by SATS’s heritage and Worldwide Flight Services (WFS) rose by 14.2% and 6.4% and 28.8% and 16.3% respectively in 4QFY2024,” he says.
Sum adds that management highlighted that the company’s yield management efforts are starting to pay off, gaining significant traction in the e-commerce segment with sea-to-air freight diversions becoming more “pronounced” due to the prolonged Red Sea situation.
Despite the earnings beat in the 4QFY2024, Sum has kept his earnings estimates for the FY2025/FY2026 unchanged as he was already anticipating considerable growth in SATS’s earnings for the next two years.
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He has, however, raised his FY2025/FY2026 revenue estimates by 3.1% and 5.8% respectively to factor in pricing improvement and stronger volume growth across both of SATS’s segments. That said, this is offset by higher finance costs after imputing a higher cost of debt. The higher cost of debt is factored in as fewer rate cuts from the US Federal Reserve (US Fed) are now expected.
Meanwhile, Sum has slashed his dividend per share estimates to 3 cents in FY2025 and 5 cents in FY2026, down from 6 cents and 9 cents respectively. The lower estimate is due to an assumed dividend payout ratio, he says.
His raised target price comes as he rolls his valuation peg over to FY2025.
In her May 31 report, OCBC’s Lim notes that SATS’s revenue for the FY2024 met her expectations while the company’s bottom line was a “strong beat” due to a “small base”, better-than-expected operating cost control and better operating leverage which led to ebit margin expansion. SATS’s FY2024 patmi was nearly double Lim’s expectations.
During its results briefing, SATS’s management also shared that the integration of WFS has resulted in a recurring ebitda uplift of around $40 million. SATS announced the completion of the WFS acquisition on April 3, 2023. On Sept 28, 2022, SATS announced that it was acquiring the global cargo handling firm for EUR1.19 billion.
For the quarter, SATS declared a final dividend of 1.5 cents per share, making up 30% of SAT’s core earnings. The final dividend is subject to shareholders' approval on July 19 and to be paid out on Aug 8.
“In FY2025, SATS looks to repay $200 million worth of borrowings, which could improve profitability through finance cost savings, and to reinvest $300 million worth of capital expenditures (capex),” Lim writes.
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“In the longer run, it is targeting for group revenue to exceed $8 billion and return on equity (ROE) to reach 15% by FY2028. Top line growth will likely be driven by more commercial wins for gateway services (with more than $180 million worth of annualised revenue achieved through new contracts secured in FY2024), and further market penetration for food solutions (particularly in the ready-to-eat meals segment), supported by increased production capacity,” she adds.
SATS’s results also beat UOBKH analyst Roy Chen’s expectations. This was due to slightly better-than-expected margins and higher-than-expected contributions from the company’s joint ventures and associates in the 4QFY2024, he notes.
“Despite overall weaker seasonality, SATS managed to achieve q-o-q higher net profit in 4QFY2024 at $32.7 million (3QFY2024: $31.5 million). The q-o-q increase was driven by better performance in Asia Pacific (Apac) under SATS' original businesses which benefitted from better operating leverage,” Chen writes in his May 31 report. “On the other hand, WFS posted q-o-q lower operating profit of $38.7 million in 4QFY2024 (3QFY2024: $67.5 million), in line with the weaker seasonality.”
However, Chen notes that several one-off items including integration expenses and impairments from some legacy investments have adversely impacted the company’s headline net profit. Despite this, SATS’s 4QFY2024 and FY2024 core earnings stand at $47.3 million and $78.5 million, respectively.
Due to the higher-than-expected results, Chen has raised his earnings forecast for FY2025 to $215 million, 36% higher than his previous estimate. He is also expecting SATS to see a stronger momentum in earnings recovery. His FY2026 earnings estimate remains unchanged at $285 million.
In their flash note dated June 3, Citi analysts Kaseedit Choonnawat, Amy Han and Eric Lau note several key points highlighted in SATS’s post-results strategy update briefing. The company announced its plans to increase overall revenue to exceed $8 billion by 2028 or an estimated 9.2% compound annual growth rate (CAGR) with a target ROE of 15%, which is in line with their pre-Covid figures.
“[The] key five drivers are scaling up revenue, drive for operating leverage via costs efficiencies and productivity, rationalise portfolio, i.e., sell non-lower performing assets to redeploy at higher returns, right sizing leverage / optimise cash flows and pay dividends,” write the analysts.
Furthermore, the analysts note the company’s expectations to drive up cargo handling yield from increasing its focus on specialised cargo and growing volume shares through global footprint offerings with multi-modal partners.
The Citi Research analysts also add that SATS has announced its aim for the company’s dividend to achieve sustainability and growth with earnings. However, they note that the company’s payout will not match pre-Covid levels of 70% to 80% as SATS continues to prioritise debt repayment and growth.
Choonnawat, Han and Lau also note the company’s confidence in exceeding their $100 million synergy target following its achievement of $40 million in FY2024 which derived half from commercial initiatives and around a third from costs.
“Sequential traffic recovery at Changi and global air freight improvements along with SATS / WFS transformation should continue to drive earnings and share price higher,” they write.
As at 2.28pm, shares in SATS are trading at 4 cents higher or up 1.41% at $2.88.
