SATS S58 on Feb 13 announced its 3QFY2023 ended December 2022 results, which saw earnings or patmi come in some 90.2% lower y-o-y at $0.5 million. While patmi saw y-o-y decline, this positive patmi comes after two consecutive quarters of losses, reflecting an improvement in business conditions and the seasonal high, says SATS.
Revenue for 3QFY2023 rose by 54.5% y-o-y to $475.7 million as business activities increased on the back of a recovery in the aviation industry.
Following its results announcement, analysts are generally positive on the group’s upcoming prospects.
CGS-CIMB Research is keeping its “add” recommendation with an unchanged target price of $3.21, as analysts Tay Wee Kuang and Lim Siew Khee note that the group’s recovery continues to be dampened by higher costs.
“We expect SATS to see a core net loss of $30.5 million in FY22023 from $6.9 million in net profit previously, implying a muted net profit of $2.5 million in 4QFY2023 due to the volume-driven nature of higher other operating costs and remaining acquisition-related expenses of Worldwide Flight Services (WFS), which could set SATS back on its pace of recovery in the near term, even though staff costs and raw material costs have normalised,” say the analysts.
Meanwhile, they are upbeat on China reopening, though there may be some delayed financial impact, as the Singapore-China flights are still at less than 10% of pre-pandemic levels. “As such, we believe the reopening of China’s border, although an important milestone given Chinese tourists made up 19% of total visitors to Singapore pre-pandemic, will only gradually pick up over the next two quarters,” say Tay and Lim.
Although the earnings profile is expected to deteriorate post-acquisition, the analysts like the group’s improved cash generation capabilities of the combined group given an estimated ebitda of about $605 million in FY2024 and $717 million in FY2025. They also see SATS as a proxy for a recovery in travel.
UOB Kay Hian has also reiterated its “buy” call on SATS and target price of $3.28.
Analyst Roy Chen is positive on the group’s moderate q-o-q improvement in earnigs, but it was a slight miss compared to his projection, which expected SATS’ core profitability to have returned to positive territory in 3QFY2023.
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The slight miss of SATS’ core profitability was mainly due to the faster-than-expected growth of operating costs, as during the quarter SATS continued to proactively ramp up the workforce strength in preparation of the recovery of air traffic from China. Management has said that its workforce has recovered to almost 100% of pre-pandemic level, making it well-positioned to support and capture the regional air traffic recovery with China’s reopening.
Nonetheless, Chen is expecting positive core profitability in 4QFY2023. “Given that SATS has completed workforce ramp-up in the past quarter and taking into the account further regional air traffic recovery with China’s reopening (China used to contribute to about 20% of SATS’ total business volume), we expect SATS’ core profitability to return in to the black in 4QFY2023,” says Chen.
As at 1.00pm, shares in SATS are trading 6.0% lower at $2.82.
Photo: SATS
