SATS - UOB Kay Hian 2024-01-10: Earnings Recovery To Gain Traction In 2024; Red Sea Crisis To Benefit Air Cargo

• We expect SATS’ earnings recovery to gain traction in 2024, driven by the continued air traffic recovery and growth in global air cargo demand. The ongoing Red Sea crisis, which has led to more time-sensitive cargo being diverted from ocean freight to air freight, should also benefit SATS given WFS’ strong presence in Europe.
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Earnings recovery to gain traction in 2024.

• SATS (SGX:S58) has been a laggard in terms of earnings recovery compared with other Singapore aviation plays. However, we expect its recovery momentum to gain speed in 2024, as:
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  • its air cargo handling businesses should benefit from a potential reacceleration of air cargo growth, with IATA forecasting a 4.5% y-o-y growth for global air cargo demand in 2024.
• In addition, with an already more or less stabilised headcount ramp-up, operating leverage should also kick in and help SATS’ earnings recovery.
• We forecast SATS’ FY25 (Apr 24 – Mar 25) net profit at S$158m, a 283% y-o-y growth from FY24’s low base of S$41m, and project SATS’ earnings to rise further to S$285m (more normalised state of earnings) in FY26.

The Red Sea crisis may provide tailwinds to air cargo demand, benefitting SATS.

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Roy Chen CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2024-01-10 SGinvestors.io

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