SATS - DBS Research 2022-06-01: Taking A Breather For Now

SATS - Taking A Breather For Now

SATS LTD. (SGX:S58) | SGinvestors.ioSATS LTD. (SGX:S58)
  • SATS (SGX:S58) returned into the red again in 4QFY22, with a core net loss (excluding revaluation gains and PPE impairment losses) of around S$10.6m (vs. core net profit of S$5.1m in 3QFY22 and S$13.2m in 4QFY21). SATS's FY22 full-year core PATMI amounted to S$18.4m, missing the street’s projection of S$34.4m.
  • Operating losses widened in 4QFY22. SATS booked an operating loss of S$37.1m for the quarter, as compared to an operating loss of S$9.5m in the previous quarter. This was primarily attributable to a steep increase in staff costs (+19.3% q-o-q), driven by an increase in the employee headcount and fading wage subsidies.
  • Operating costs will likely grow faster than revenue over the next few quarters. While SATS’s revenue will likely stage a solid rebound from 1QFY23, with Singapore’s new Vaccinated Travel Framework and the synchronised reopening of countries in the region, costs could outstrip revenue growth for a while due to several reasons.
    • Firstly, staff costs will increase significantly because SATS has to restore manpower supply prior to the return of demand due to time required for training new employees (typically 3 to 6 months), wage inflation pressures (due to a tight labour market), and the absence of wage subsidies (S$145.6m in FY22).
    • Secondly, SATS will have to deal with higher food costs, which have risen by 20%-30% this year.
  • While SATS has multiple levers to control its raw material costs, we believe that the group may have difficulties passing on any increased costs to its consumers. Consequently, the management has guided that operating costs will likely outpace revenue growth over the next two quarters at least.
  • We are slashing our FY23/24F net profit estimates for SATS by 53% and 10%, respectively, to reflect the abovementioned cost headwinds. Consequently, we are lowering and rolling forward our P/E peg to 30x blended FY23/24F net profit (from 35x FY23F net profit previously) to arrive at a lower target price of S$4.50 for SATS.




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/ 2022-06-01



Read also DBS's most recent report:
2022-07-25 SATS - Still Not The Time To Go Long.

Price targets by 4 other brokers at SATS Target Prices.
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