SATS - OCBC Investment 2020-08-25: 1QFY21 PATMI Remained In Red

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

SATS - 1QFY21 PATMI Remained In Red

  • SATS' revenue supported by non-aviation segment.
  • Aviation recovery may take longer.
  • Cargo was relatively more resilient.

SATS' 1QFY21 PATMI extended losses to S$43.7m

  • SATS (SGX:S58)’s 1QFY21 revenue fell 55% y-o-y to S$209.4m, weighed by weak aviation revenue which declined 72.9% y-o-y to S$110.6m, but partially offset by non-aviation revenue (+73.3% y-o-y to S$96.9m).
  • By business, revenue from Gateway Services was down 67.9% y-o-y to S$71.6m while Food Solutions saw a lower decline of 43.7% y-o-y in revenue to S$135.9m driven by the consolidation of new entities in Food Solutions.
  • Group expenditure declined 39.9% y-o-y to S$245.4m in 1QFY21, largely attributable to reduction in staff cost (-58.7% y-o-y) on the back of government grants (S$61.7m), reduced contract services and lower headcount (-19% y-o-y).
  • Performances of associates/JVs were also impacted by COVID-19, which caused a loss of $31.4m as compared to a profit of S$14.6m in 1QFY20.
  • All-in, SATS' 1QFY21 PATMI remained in losses at S$43.7m, as compared to a loss of S$6.3m in 4QFY20 and a profit of S$54.7m in 1QFY20. The results was in-line with SATS’ earlier guidance of “narrower than S$50-70m losses” but exceeded our initial expectations due to higher tax credits.

Cargo was less severely impacted by pandemic

  • For 1QFY21, SATS’ passengers and meals served fell 99% and 51% y-o-y respectively due to COVID-19. Flights handled was down 93% y-o-y, supported by operations of evacuation flights.
  • On the other hand, cargo volume fell 51% y-o-y to 221k tonnes. Performance of cargo was relatively more resilient than passengers and flights, helped by demand for essential sectors and sharp decline in aircraft belly cargo capacity which drove air-freight rates above historical averages.

Prolonged aviation recovery

  • The International Air Transport Association (IATA) estimated that the recovery of global air transport industry may be more prolonged as they downgraded its Revenue Passenger Kilometers (RPK) forecasts. IATA expects that RPK will only recover to pre-COVID-19 levels in 2024 with uncertainty skewed towards the downside. However, we are likely to see that the worst is over with recovery in RPK since the trough in April as countries exit from lockdowns and ease travel restrictions, barring the risk of subsequent waves of infections.
  • In the near to mid-term, we believe that SATS may have to rely on its non-aviation (17%/46% of FY20/1QFY21 revenue) segment such as institutional catering and commercial catering and cargo services to support its revenue growth.
  • After adjustments, our fair value estimate increases from S$2.76 to S$2.93.
  • See SATS Share Price; SATS Target Price; SATS Analyst Reports; SATS Dividend History; SATS Announcements; SATS Latest News.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-08-25
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