SATS - CGS-CIMB Research 2020-02-13: Cloudy Skies

SATS LTD. (SGX:S58) | SGinvestors.io SATS LTD. (SGX:S58)

SATS - Cloudy Skies

  • SATS (SGX:S58)’s 3QFY3/20 core net profit of S$59m was in line with our expected S$60m on seasonal strength, with revenue up by 9.7% q-o-q to S$546m.
  • SATS’s Singapore revenue could drop by 30% y-o-y in CY20 using STB’s guide, while China could volume down by 40% y-o-y in the aviation space.
  • Our previous FY20F DPS S$0.19 is likely to be at risk given the uncertain outlook, in our view.
  • Maintain REDUCE on near-term headwinds.

Revenue grew 18% y-o-y, margin dipped 2.5bps

  • SATS's 9MFY20 net profit of S$174m formed 86% of our full-year forecast and 77% of consensus’. We consider this set of results in-line as we forecast a -50% q-o-q in earnings in 4QFY20F.
  • Overall revenue grew 18% y-o-y and 9.7% q-o-q to S$546m, driven by seasonal strength as well as the consolidation of GTR and Country Foods. Revenue from gateway was up 11% y-o-y and 4% q-o-q to S$234m and food solutions up by 23% y-o-y and 15% q-o-q to S$311m.
  • Japan revenue was flat q-o-q at S$68m (+11% y-o-y) thanks to the completion of Haneda’s kitchen expansion and more slots given by airlines. However there could be downside risks in the coming quarter as Chinese visitors accounted for c. 30% of 2019 tourist numbers in Japan.
  • SATS’s 3QFY20 EBIT margin dipped to 11.5% (3QFY19:14.1%) mainly due to the consolidation of the two entities mentioned above.

Consequential impact from Covid-19 (STB: -30% y-o-y in 2020)

  • SATS takes its cue from the Singapore Tourism Board (STB) that tourist numbers could fall by 30% in 2020; its Singapore revenue could be similarly impacted.
  • SATS has seen a harder hit in its Chinese aviation operations as volume was down by 40% y-o-y in Feb 20. In Feb, SIA mainline cut its ASK capacity to China by 47%, while SilkAir cut its China ASK by 44%. Scoot has also cut its Feb-Mar capacity to China by 90%, excluding ad-hoc cuts for HK and Macau. This represents some 45% of Scoot’s medium/long-haul ASK.
  • SATS expects to see some relief by the Singapore government in the upcoming Budget on 18 Feb. During SARS, it received wage credit, a tax concession and expenses relief. We expect its EBIT margin to plunge to 8-10% in the next two quarters.

PT Cas and Brahims held associates’ profit firm

  • Despite S$2m-3m start-up costs at Daxing airport, contribution from gateway associates were flat q-o-q at S$10.4m, driven by PT CAS, offsetting the weak cargo volume in Mumbai and Hong Kong. Contribution from food solutions associates was up 43% q-o-q to S$4.3m, with improvements in Brahims.
  • We believe overall performance in associates may not be spared ahead given the contagion virus impact regionally.

Maintain REDUCE.

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-13
SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 4.070 SAME 4.070