SATS - CGS-CIMB Research 2023-01-14: Peek Into Pro-Forma WFS Numbers Ahead

SATS - Peek Into Pro-Forma WFS Numbers Ahead

SATS LTD. (SGX:S58) | SGinvestors.ioSATS LTD. (SGX:S58)
  • Consolidation of Worldwide Flight Services (WFS) could double SATS (SGX:S58)’s proforma revenue to S$5.5bn by FY24 (Apr 2023 to Mar 2024) as it becomes the top air cargo handler globally, in our view.
  • Worldwide Flight Services (WFS)'s 3QFY22 revenue reached €516m (+44% y-o-y) from the acquisitions of air cargo handlers Pinnacle and Mercury in 4Q21 as well as organic growth. A quarterly run rate of €500m in revenue suggests that WFS could reach €2.2bn p.a. by FY23F.
  • As of 9MFY22, WFS’s net loss came in at €91.3m, of which €61.3m is related to unrealised forex losses arising from its US$400m notes on the back of a weakened Euro/US$. Excluding forex impact and assuming a stable Euro/US$, WFS’s reported losses are likely to narrow to ~€10m in FY12/22F, in our view. Excluding government grants, WFS’s gross margins have held stable at 12.7% in FY21-9M22 despite inflationary and labour costs pressures, thanks to sustained revenue growth and improved productivity. We also believe some cost pass-through has been effective.
  • Of the 3 outstanding bonds from WFS worth ~€1bn, with financing costs of ~7.5%, the first tranche of €250m notes is callable in Mar 23, while the remaining €250m and US$400m notes could be refinanced by Mar 24. We have assumed refinancing rates of ~4.8%, saving ~S$31m/S$38m for SATS in FY24F/FY25F.
  • We factored in S$25m-50m of synergies to flow through from CY24, based on SATS previously guided potential run-rate EBITDA synergies in excess of S$100m in the medium term via cross-selling, ecommerce cargo partnership and automation.
  • Due to the different financial year ends for SATS (Mar) and WFS (Dec), WFS’s contribution to SATS’s FY24F/FY25F PATMI is S$4.0m/S$25.5m. We think that investors should look past the EPS dilution of 20.8%/13.5% in FY24F/25F but focus on the PATMI growth of 11.7% y-o-y that will be achieved with the consolidated group, which we estimate would bring the consolidated PATMI to S$269.8m by FY25F
  • Reiterate ADD on SATS with adjusted target price of S$3.21. Our EPS forecast for SATS is up by 12-16% for FY24-25F to reflect the faster-than-expected reopening of China starting 2023. We believe core operations could reach 100% of pre-COVID by FY25F on stronger associates and margin recovery.
  • Key dates to note include 18 Jan 23, where SATS will hold an EGM for shareholders’ approval of the acquisition, after which, SATS will seek clearance of antitrust laws and submit foreign direct investments filings.
  • Catalysts: ability to refinance WFS’s €250m note due in Mar 23, stronger-than-expected recovery of SATS’s core operations, and contracts wins.
  • Key risks: failure to get approval from shareholders on acquisition of WFS (breakup fee: US$100m) and a sharp global recession.

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 | 2023-01-14

Previous report by CGS-CIMB:
2022-12-02 SATS - Finalisation Of Funding Structure For WFS Acquisition.

Price targets by 3 other brokers at SATS Target Prices.
Listing of research reports at SATS Analyst Reports.

Relevant links:
SATS Share Price History,
SATS Announcements,
SATS Dividends & Corporate Actions,
SATS News Articles

SGX Stock / REIT Search


Trust Bank God Of Fortune Referral Code PGKPSWAE Trust Bank Referral Code 🧧