SATS - OCBC Investment 2021-02-11: Boost From Strong Cargo Demand

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

SATS - Boost From Strong Cargo Demand

  • SATS's PATMI loss narrowed in 3QFY21.
  • Cargo performed better than passenger business.
  • Non-aviation business could provide some buffer.

SATS's 9MFY21 results within expectations

  • SATS (SGX:S58)’s 3QFY21 (Oct 2020 to Dec 2020) revenue fell 54% y-o-y to S$251.0m, weighed by a 67.1% y-o-y decline in aviation revenue while non-aviation revenue remained largely unchanged (- 0.8% y-o-y), as SATS continued its efforts to expand non-aviation revenue stream. See SATS's announcements.
  • Share of SATS’s associates/JVs fell 76.2% y-o-y to S$3.5m in 3QFY21 as compared to a loss of S$12.8m in 2QFY21. S$22.5m of impairment charges were made on investment and PPE.
  • All-in, SATS's 3QFY21 PATMI loss narrowed from S$33.2m last quarter to a loss of S$2.8m this quarter, thanks to strong cargo performance and government relief.
  • Total 9MFY21 PATMI loss was S$79.7m, which forms 76% of our initial full-year forecast, in-line with our expectations.

Cargo remained the bright spot

  • For 3QFY21, SATS’s passengers and flights handled fell 95.4% and 84.4% y-o-y respectively due to muted travel demand. Meal served was similarly impacted which saw a decline of 54.9% y-o-y while cargo volume fell 33.9% y-o-y, helped by demand for essential sectors and sharp decline in aircraft belly cargo capacity which drove air-freight rates above historical averages.
  • Based on IATA’s latest forecast, cargo volume is expected to return to 2019 levels by Apr 2021.

Beneficiary of vaccine shipment and rollout

  • Management shared that SATS has handled inbound and transhipment of COVID-19 vaccine shipments across Asia.
  • With the rollout of vaccines, we believe that SATS is poised to benefit from vaccine shipment as a Certified pharma handler and a gradual recovery of travel demand ahead. As it may take time for global rollout of vaccines and opening of international borders, we believe that SATS may have to rely on its non-aviation (17%/44% of FY20/9MFY21 revenue) segment such as institutional catering and commercial catering and cargo services to support its revenue growth in the near to mid-term.
  • After adjustments, our fair value estimate for SATS increases from S$4.31 to S$4.95.
  • 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/ 2021-02-11
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