SATS - OCBC Investment 2020-11-13: Beneficiary Of Vaccine Shipment

SATS LTD. (SGX:S58)

SATS - Beneficiary Of Vaccine Shipment

SATS (SGX:S58)’s 2QFY21 revenue fell 53.5% y-o-y to S$231.1m due to weak aviation revenue which declined sharply (-70% y-o-y), but partially offset by higher non-aviation revenue (+35.2% y-o-y).
Group expenditure declined 46.6% y-o-y to S$231.1m in 2QFY21, largely attributable to reduction in staff costs and lower headcount (-24% y-o-y).
Performances of associates/JVs were similarly impacted by COVID-19, which caused a loss of $12.8m as compared to a profit of S$13.7m in 2QFY20.
S$31.6m of impairment charges were made on investment in an associate and long-term investment due to the pandemic.
All-in, SATS's 2QFY21 PATMI remained in losses at S$33.2m as compared to a profit of S$60.7m in 2QFY20. The losses, however, were narrowed on a q-o-q basis from a loss of S$43.6m in 1QFY21.
No interim dividends were declared by SATS as compared to 6 cents in the same quarter last year on cash conservation.

For 2QFY21, SATS’s passengers and meals served (for both aviation and non-aviation) fell 92% and 45% y-o-y respectively due to weak travel demand and travel restrictions. However, the numbers improved significantly on a q-o-q basis (20%/800% q-o-q for meals served and passengers handled respectively).
Flights handled was down 78% y-o-y but improved 213% q-o-q. Separately, cargo volume fell 41% y-o-y to 0.3m tonnes, 36% higher q-o-q. 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.
We expect cargo volume to improve further with strong demand from pharmaceutical companies and boost from the distributions of vaccines in 2021.

We understand from management that SATS and several of its subsidiaries and associates are CEIV Pharma certified to handle the Pfizer vaccines which requires temperature handling of minus 75-80 degrees Celsius. Management added that SATS handled shipments which required similar temperature before and are confident that they could use their network to handle the shipments of vaccines next year.
Currently, SATS is CEIV Pharma certified in Singapore, Beijing, Muscat and Bangalore, and is in the process of gaining certification in Jakarta and Kuala Lumpur. We believe this would provide significant opportunities for SATS.
See SATS Share Price; SATS Target Price; SATS Analyst Reports; SATS Dividend History; SATS Announcements; SATS Latest News.
After adjustments, our fair value estimate for SATS increases from S$2.93 to S$4.31 on better outlook and near-term catalyst from potential vaccine shipments.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-11-13

SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.31 UP 2.930