- SATS (SGX:S58)'s results were in line with our expectations, though the mix was disappointing. Food solutions remained in the red with operating loss of S$0.9mil despite recovery in revenue to pre-COVID levels. WFS contributed operating profit of S$73mil for the first time, or operating margin of 5.1%.
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- SATS's net debt as at end Sep 2023 was S$2.3bn or net gearing of 0.9x.
- Downgrade SATS to REDUCE (from NEUTRAL) and a lower target price of S$2.23 (previously S$2.51), to factor in higher working capital at WFS.
The Negatives
SATS-only operating margin was just 0.3%.
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- We believe the key reasons were
- rise in operating costs, chiefly staff costs due to a manpower shortage in Singapore and Hong Kong;
- fall in revenue from non-aviation (- 13.8% y-o-y) due to lower catering and distribution demand.
- Flights at Singapore Changi Airport have been restored to about 89% of pre-COVID levels. Further growth is limited given the manpower and capacity bottlenecks faced by airlines. Thus, we are concerned that further improvement in food solutions earnings could be muted.
1H24 EBIT barely covered interest expenses.
- Read more at SGinvestors.io.
