SATS - DBS Research 2022-07-25: Still Not The Time To Go Long

SATS - Still Not The Time To Go Long

SATS LTD. (SGX:S58) | SGinvestors.ioSATS LTD. (SGX:S58)
  • SATS (SGX:S58)'s 1QFY23 results fell short of expectations. SATS reported a net loss of S$22.5m in 1QFY23, a sequential improvement from 4QFY22 (net loss of S$26.8m) but slightly behind the street’s full-year net profit projection of S$62.0m even after factoring a back-ended recovery. Barring government grants (1QFY23 should be the final quarter of government support), SATS would have booked a core net loss of S$31.9m.
  • Group revenue surged by 36.2% y-o-y and 25.4% q-o-q to S$375.5m, above our estimate of S$360.0m. Growth was driven by the full contribution (S$32.4m) of Asia Airfreight Terminal (AAT) during the quarter (consolidated from March-22), and strong recovery in travel-related revenue which was partly tempered by a decline in non-travel revenue.
  • Excluding AAT, travel-related revenue grew by 60.5% y-o-y and 28.8% q-o-q on the back of a marked rebound in activity levels in tandem with the reopening of borders in Asia and other regions. The number of flights handled were up by 233% y-o-y to 55% of pre-pandemic levels in 1QFY23, while cargo throughput increased by 53.2% y-o-y largely due to the consolidation of AAT. Meanwhile, non-travel revenue declined by 17.1% y-o-y and 8.9% q-o-q, primarily due to the negative impact of lockdowns in China on non-aviation food.
  • However, SATS continued to report steep operating losses as cost pressures (staff, premises and other operating costs) remain. SATS achieved an operating loss of S$34.3m in 1QFY23, a modest improvement from 4QFY22 (operating loss of S$37.1m). Majority of cost items outpaced revenue growth during the period, in particular staff costs, premise costs and other operating expenses surged by 82.6%, 53.1% and 58.0% on an annual basis, largely attributable to the reduction of government grants, increase in headcount, and higher utility and fuel costs.
  • Surprisingly, the cost of raw materials only grew modestly by 4.1% y-o-y despite a 13.4% increase in gross meals produced due to the success of SATS’s cost optimisation initiatives and a more favourable revenue mix (higher % of aviation food).
  • SATS’s share of net profits from associates and JVs came in at S$6.9m in 1QFY23, as compared to negative contribution of S$1.2m in 1QFY22. SATS’s associates and JVs in the food solutions segment were close to breakeven during the period, while units in the gateway services segment continued to report solid results.
  • We are raising our FY23F revenue projection slightly by 3.8% to reflect a more pronounced recovery in travel-related revenue as significant pent-up travel demand continues to be released over the short-term. However, we are lowering our FY23F net profit estimate for SATS by 34.1% to reflect narrower operating margins owing to stronger-than-expected inflation woes.
  • Additionally, we are lowering our target price for SATS slightly to S$4.30 as we assume a higher cost of capital (7.0% WACC vs 6.5% previously) in our discounted cash flow valuation.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Jason SUM DBS Group Research | 2022-07-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.30 DOWN 4.500

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

Target prices by 4 other brokers at SATS Target Prices.
Listing of broker reports at SATS Analyst Report.

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