SATS - CGS-CIMB Research 2022-07-25: Recovery Intact; But Costs Hurt For Now

SATS - Recovery Intact; But Costs Hurt For Now

SATS LTD. (SGX:S58) | SGinvestors.ioSATS LTD. (SGX:S58)
  • SATS (SGX:S58)’s revenue grew 25.4%/36.2% q-o-q/y-o-y to S$375.5m in 1QFY23 (1 Apr 2022 to 30 Jun 2022) with recovery within the aviation industry underway. 1QFY23 core net loss of S$22.5m missed our net profit estimate for the quarter as operating cost increases outstripped revenue recovery.
  • We estimate that SATS’s in-flight meals, a proxy for recovery within the aviation industry, returned to 52% of pre-COVID levels in 1Q23F and will reach 83% by the end of CY23F.
  • Operating expenses grew 20.1%/52.6% q-o-q/y-o-y, largely due to higher staff costs, which increased 82.6% y-o-y. Headcount increase from 11k a year ago to 14.6k as well as lower government relief exacerbated staff cost pressures. We expect headcount to rise beyond the previous peak of ~17k during pre-COVID levels by 3QFY23F.
  • Other operating expenses climbed 21.7% q-o-q on higher professional fees and fuel cost and lower grant quantum. Cost of raw materials, however, declined from 45% of food solutions’ revenue in 4Q22 to 40.8% in the past quarter.
  • Management shared that Asia Airfreight Terminal’s (AAT) contribution in 1Q23 was negligible as border restrictions in Hong Kong led to a sluggish performance for the quarter while incremental costs contributed to higher staff costs, depreciation expenses and other operating expenses.
  • We cut our FY23F earnings per share (EPS) forecast for SATS by 64.4% due to the cost ramp-up in the near term. Our FY24F/25F EPS is trimmed by a lower 14.5%/7.0% as revenue momentum suggests recovery of the aviation industry is underway, even though some margin pressure could linger. Reiterate ADD call on SATS with lower target price of S$4.47 on near-term weakness.
  • We expect SATS's losses to narrow more significantly in 2Q23F and see a return to profitability in 3Q23F, supported by seasonality factors.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

TAY Wee Kuang CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | 2022-07-25
SGX Stock Analyst Report ADD MAINTAIN ADD 4.47 DOWN 4.880

Previous report by CGS-CIMB:
2022-06-01 SATS - Recovery Affected By Near-Term Cost Drag

Target prices by 3 other brokers at SATS Target Prices.
Listing of broker reports at SATS Analyst Report.

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