SATS - CGS-CIMB Research 2020-08-24: The Worst Is Over


SATS - The Worst Is Over

  • SATS' 1Q21 net losses (-S$43.7m) were wider than our -S$30m, forming 50%/69% of our and consensus FY21F. Revenue and associates were the key misses.
  • Staff costs declined 59% y-o-y and 44% q-o-q thanks to government grants in Singapore and Japan, 19% y-o-y cut in staff strength as well salary cuts.
  • SATS is the worst performing stock among the large cap FSSTI stocks. This could have priced in the structural challenges.

Whole region made losses except Singapore

  • 1Q21 net losses (-S$43.7m) were in line with SATS (SGX:S58)’s guidance of “narrower than S$50m-70m” but missed our more hopeful -S$30m. See SATS Announcements. Revenue of S$209m (-55 y-o-y, -52% q-o-q) was dragged by weaker aviation revenue of S$111m (-73% y-o-y, -67% q-o-q).
  • Food solutions revenue remained flat at S$97m (-3.5% q-o-q, +73% y-o-y mainly due to consolidation of Country Foods). Non-aviation/aviation revenue split stood at 46%/53% relative to historical average of 15%/85% and is likely to remain so in the coming quarters as recovery in aviation takes a back seat.
  • Japan (TFK) revenue was down by 80% y-o-y and 75% q-o-q to S$13m contributing only 6% to group. Accordingly, Japan’s losses widened to S$5.7m (4Q20: S$2.7m).
  • By region, China (-S$18m) and Asean (-S$11m) contributed to most of SATS losses. Singapore turned in an S$4m profit (4Q20: S$43m).

EBITDA losses but could improve sequentially

  • Opex was down to S$245m (-40% y-o-y, -37% q-o-q) with staff costs declining by 59% y-o-y and 44% q-o-q to S$96.5m vs. historical c.S$220m/quarter thanks to S$61.7m of government grant from Singapore and Japanese governments. But this was not sufficient to offset the weaker revenue and caused SATS to turn in its first EBITDA loss of S$3m and EBIT loss of S$36m.
  • We believe this could be the worst quarter due to improving cargo volume, heading into peak season (Sep-Dec) as well as better freight rates on the back of stronger demand for perishable and medical supplies. See PDF report attached below for charts on statistics of Changi Airport's freight movements, passenger movements and no. of flights.
  • We factored in sequential recovery in revenue of 5% in 2QFY21F and 15% in 3QFY21F. For 4Q21F (Jan-Mar 21), we assume overall capacity to beat 50% of pre-Covid. However, we cut our FY21-23F EPS by 2-29% to reflect weaker-than-expected associates and slower recovery in aviation sector in general.

Upgrade SATS to HOLD with a higher Target Price of S$3.00

LIM Siew Khee CGS-CIMB Research | 2020-08-24
SGX Stock Analyst Report HOLD UPGRADE REDUCE 3.00 UP 2.800