SATS - Earnings Inflection Is Right Around The Corner
- SATS (SGX:S58) booked an operating loss of S$9.5m in 3QFY22, primarily due to a lower quantum of government reliefs, and a S$10.7m write-down on receivables due from Genting Hong Kong following the cruise line’s bankruptcy. Meanwhile, contribution from its associates and JVs grew substantially to S$12.1m (+476% q-o-q) led by continued strength among its cargo associates amid a vibrant air freight environment.
- SATS reported improvements in most operating metrics, with the number of flights and passengers handled surging by 109.7% q-o-q and 301.1% q-o-q respectively, while cargo throughput also rose by 9.0% during the quarter. However, the number of gross meals produced during the period dipped by 3.4% sequentially despite an increase in aviation meals due to a decline in non-aviation meals owing to sporadic COVID-19 flare-ups in China.
- Following its acquisition of Food City in July-21, SATS Announced that it was acquiring an additional stake in Asia Airfreight Terminal (AAT), which is a cargo terminal operator operating in the Hong Kong International Airport. The purchase of the additional stake brings SATS’s total ownership of the company to 65.4%, hence the company will become a subsidiary of the Group. The purchase price appears to be fairly attractive.
- We are reducing our FY23F net profit estimate for SATS to account for a less favourable revenue mix (recovery in domestic and intra-region flights to outpace inter-region flights), and wage and general inflation pressure. Nonetheless, we still anticipate SATS to report significant earnings growth in FY23F despite the absence of government support and rising inflation as normalisation of activity levels will drive economies of scale.
- Meanwhile, we are trimming our FY24F net profit estimate for SATS by 7%. Our revised estimates still point to SATS’s earnings reaching around 90-95% of pre-pandemic levels in FY24F. Of course, we could see earnings upside if SATS executes more earnings accretive acquisitions.
- Maintain BUY with unchanged target price of S$4.90. Our target price on SATS remains unchanged despite our negative earnings revision as we raise our P/E peg to 35.0x FY23F net earnings (up from 25.0x before) to reflect multiple expansion in the sector.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Jason SUM DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-02-24 2022-02-24
Read also DBS's most recent report:
2022-07-25 SATS - Still Not The Time To Go Long.
Previous report by DBS:
2022-06-01 SATS - Taking A Breather For Now.