PhillipCapital analyst Paul Chew has upgraded SATS to “neutral” from “sell” despite the airline gateway services and food solutions provider’s lower-than-expected 1HFY2021 results.
Chew has also raised his target price on SATS to $4.40 from $1.95.
“We last pegged our target price at its GFC average of 1.35x P/BV. We now believe this is too bearish as operations have likely bottomed and vaccine-discovery newsflow turns positive,” he writes in a report dated Nov 18.
“With losses still expected in FY21/22e, we continue to value SATS at historical P/BV. As its 3-year average of 3.5x is too high given its still-fragile recovery and uncertain outlook, we use 3.3x,” he adds.
SATS, on Nov 12, reported a 54% decline y-o-y in revenue to $440 million, which came in at 30% of Chew’s FY2020e estimates.
Excluding government reliefs, which came in at $152 million, SATS’s net loss of $197.1 million stood at 128% of his FY2021e loss estimates.
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While expecting net losses for the next two years, Chew also expects air traffic to remain muted in FY2021, as it isn’t clear how quickly the vaccines can slow down infection rates and bring air travel back to pre-Covid-19 levels.
“We do not see any meaningful recovery for the aviation sector in 2021. The near-term positive surprise has been the level of government support, with subsidies on track to surpass one-year PATME for SATS. The company is making long-term investments to pivot away from aviation to the handling of e-commerce, perishable and pharmaceutical products,” he says.
Positives on the counter include lower driving costs from lower headcount and a fall in costs of raw material.
SATS’s CEO Alex Hungate has also said that it is certified to handle the transportation of vaccines even in extreme environments.
See: Analysts mixed on SATS despite potential Covid-19 vaccine, air travel bubble
However, Chew views SATS’s operating conditions as “still sluggish” due to weakness in revenue and the overall decline in the number of flights handled during the 1HFY2021.
As at 9.46am, shares in SATS are trading 3 cents higher or 0.7% up at $4.13.
