Analysts from DBS Group Research, and Citi Research have maintained their “buy” calls on SATS, with unchanged target prices of $4.90 and $4.60 respectively
CGS-CIMB Research meanwhile, has kept its “hold” call, but raised its target price slightly from $4.32 to $4.34.
SATS reported a fourth straight quarter of profitability, with 3QFY2022 earnings (ended December) coming in at $5.1 million, a 282.1% jump y-o-y. Revenue stood at $307.8 million, a 22.6% rise y-o-y.
CGS-CIMB’s Tay Wee Kuang writes that revenue for 3QFY2022 was in line with estimates, but higher operating expenses, which included higher staff costs and one-off bad debt provision of about $10m pushed SATS back into EBIT losses territory.
Without the one-off provision, SATS maintained a stable q-o-q operating profit, at a break-even level.
He does highlight the contribution from SATS’ associates, saying an “unexpected improvement” in gateway associates’ contribution of $12.1 million in 3QFY2022 (+S$8.6m yoy/+S$10m qoq) allowed SATS to achieve PATMI of $5.1 million.
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Tay added the associates’ contribution was mainly due to an improvement in gateway associates’ businesses in Indonesia and India.
“Given that the gateway business has benefitted from the maturing of e-commerce globally during the pandemic, we think that share of gatew ay associates’ business could continue to deliver stable and sustained contribution.
As such, he has estimated a greater contribution from associates in FY2023.
Elaborating on the higher staff costs, Tay points out that staff costs in 3QFY2022 continued to track higher as staff count increased to 12,000 from 11,000 in the previous quarter.
This is in accordance with a higher volume of activities and heightened safety measures within the airports.
Furthermore, he says management is expecting hiring to continue as it ramps up operational capabilities in anticipation of the return of the aviation business by the end of 2023.
With wage inflation and a tapering of government grants by 1QFY2023, SATS could see short-term cost pressures from wages.
DBS’s Jason Sum also paints an optimistic outlook for SATS, saying a resilient cargo demand and rapid growth in non-aviation food business will propel its recovery.
“Robust demand for air cargo, underpinned by strong e-commerce, perishables, and pharmaceutical product (including vaccines) volumes, coupled with its pivot to non-aviation food channels, should accelerate SATS’s recovery.”
He projects non-travel revenue to grow at a 10-15% compound annual growth rate (CAGR) over the next three years.
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Sum also thinks that a merger or acquisition (M&A) for SATS could lead to a “positive earnings surprise”, pointing out that SATS has a net cash position of $135 million as of 3QFY2022.
This would enable the company to capitalise on M&A opportunities, adding SATS has spent $81 million on acquisitions in the past six months and could share good news on this front soon.
Citi Research’s Kaseedit Choonnawat is aware of concerns from investors about the end of government grants, but thinks that the pace of recovery in air traffic should more than offset the rollover of grants.
Furthermore, he likes SATS’ proposed acquisition of an additional 16.4% stake in Asia Airfreight Terminal, a cargo terminal located at HK International Airport.
Choonnawat says this incrementally helps SATS to increase exposure to the strong growth of the global air-freight industry.
He points out that Hong Kong is the world’s 2nd biggest air-cargo airport; and its $58.5 million price tag implies about 1.7x P/B, lower than SATS’ current 3x FY2022 P/B, although he acknowledges there limited info on profitability.
As at 12.08pm, SATS shares were trading at $4.04, with a forecasted FY2022 price to earnings ratio of 131.7 and no dividend yield.
Photo: The Edge Singapore/Albert Chua
