SATS LTD. (SGX:S58)
SATS - 3QFY21 Q-o-q Improvement On The Back Of Higher Cargo Volumes
- SATS delivered q-o-q improvement in earnings, which was largely expected. This came on the back of higher cargo volumes, which led to higher operating and associate profits.
- While SATS has continued to make impairment provisions, we expect this to decline sharply over the next two quarters. We remain neutral on SATS, given its high dependency on government grants and uncertainty on the opening up of the borders.
- Maintain HOLD. Target price: S$3.96. Entry price: S$3.70.
A better quarter, but largely within expectations.
- SATS (SGX:S58)'s 9MFY21 net loss of S$62m was higher than the street’s and our estimate of S$46m and S$56m respectively in full-year losses.
- Key earnings driver was a 19.6% q-o-q rise in gateway services revenue, which came on the back of higher cargo handled. Cargo volume at Changi in 3QFY21 rose 14.5% q-o-q, but SATS indicated that it gained market share with the addition of Qatar Airways and Malaysian Airlines as customers. SATS also recognised S$68.6m in government grants, S$9.3m lower than 2QFY21, and also warned that such grants would be lower in the final quarter.
- Excluding grants, SATS’ 3QFY21 core net loss would have been S$59.3m.
Further impairment losses recognised in 3QFY21 and marginal operating cash flow deficit for the quarter.
- SATS had recognised a S$32m impairment loss on an ASEAN associate in 1HFY21, S$11m in impairments from an associate and intangible assets, and another S$11.5m in impairment on PPE. While this did not have an impact on cash flow, the group had an operating cash deficit of S$4.8m for the quarter.
Staff costs were 8% higher q-o-q, but this was mainly due to lower government grants.
- Excluding that, staff costs would have declined by 2.3% q-o-q. SATS also highlighted that overall, the number of employees had declined by 33% y-o-y as at end- 3QFY21.
Associate revenue showed sequential improvement due to higher cargo handling revenue,
- which led to a reversal from a S$12.8m loss in 2QFY21 to a S$3.2m profit in 3QFY21. SATS remains optimistic of a recovery in cargo volumes.
Focusing on non-aviation travel business to buffer the uncertainty of a recovery in the aviation business.
- Excluding the cruise business, the non-aviation segment as at 3QFY21 rose 10% y-o-y, partly due to recent acquisitions and expansion at Country Foods.
Neutral on the results.
- As expected, a surge in air cargo traffic has led to higher gateway services revenue. On balance, we expect this trend to continue until at least 1H21. The improvement in associate earnings however turned out to be better than expected.
- Overall, SATS’ earnings and cash flow have been buffered by government grants.
- Going into FY22, we expect a recovery in apron revenue to take place only in 2HFY22 and have factored in a 47% y-o-y increase. On the flip side, costs should rise in FY22, due to a steep reduction in Jobs Support Scheme (JSS) and other government grants. We estimate that SATS would receive about S$270m in JSS for FY21.
Earnings revision
- We raise our FY21 loss estimate by S$6m but raise our FY23 net profit estimate by 13% factoring in stronger growth from associates.
- See SATS Share Price; SATS Target Price; SATS Analyst Reports; SATS Dividend History; SATS Announcements; SATS Latest News.
- Maintain HOLD; target price raised to S$3.96 (previously S$3.62). We now value SATS on a DCF basis on recurring FCF, with WACC at 6.99% and terminal growth rate of 3.0% (previously 2.7%).
K Ajith
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-02-11
SGX Stock
Analyst Report
3.96
UP
3.62
