SATS - UOB Kay Hian 2021-05-28: 2HFY21 Sequential Improvement In Earnings, But FY22 Would Be Highly Challenging

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SATS - 2HFY21 Sequential Improvement In Earnings, But FY22 Would Be Highly Challenging

  • SATS’s sequential improvement in earnings and strong cash generation are key positives, but the latter was mainly due to government grants, excluding which full-year losses would have widened.
  • Going into FY22, we estimate that grants could decline by 60% y-o-y. While investors are clearly looking beyond FY22, we are concerned about margins on inflight meals as well as inflationary cost pressures.
  • Maintain HOLD. Target price: S$4.09.


SATS reported 2HFY21 losses of S$2m vs implied street estimate of S$40.9m.

  • We had estimated S$13.9m in profits for 2HFY21. For 4QFY21, SATS (SGX:S58) registered a small net profit of S$0.8m. Earnings were mainly dragged down by S$43.8m in impairment charges and credit loss provisions.
  • Overall, we are still positive on the results, due to the sequential improvement in revenue, EBIT and EBITDA since the start of the pandemic.
  • As at end-4QFY21, SATS’s EBITDA (including share of associates’ earnings) amounted to $46.2m, which was 7.1% higher y-o-y due to lower associate losses. SATS also recognised S$51m in government grants in 4QFY21, S$17.4m lower q-o-q. Excluding grants and other relief measures, SATS 4QFY21 core net loss would have been S$45.4m (S$59.3m in 3QFY21).

Strong cash generation, 32% y-o-y growth in 4QFY21 non-travel related revenue and strong cargo earnings are key positives.

  • SATS generated S$117m in operating cash flow in FY21, 83% of which was generated in 2HFY21. As for non-travel related revenue, the bulk of the initiatives are in Singapore, with SATS having secured a contract to provide meals to the Home Team and also increasing its retail distribution locally.
  • SATS also highlighted that it had mothballed one of its kitchens in Changi and is using the other kitchen to provide meals outside of the non-aviation sector. Higher cargo revenue was a key earnings driver and SATS indicated that it expects further growth, highlighting a sequential growth in cargo handling. SATS also guided that e-commerce shipments have higher volume due to track-and-trace features.

High impairment charges, low profitability outside of Singapore and rising raw material costs are key negatives.

  • Raw material costs as a proportion of food solutions revenue in 4QFY21 amounted to 49.5% vs 37.1% a year ago and 47.6% in the preceding quarter, suggesting inflationary cost pressures.
  • SATS's associate/JV losses in 2HFY21 fell 91% h-o-h on higher cargo handling revenue, but the S$7.1m loss in 4QFY21 was due to reduced business volumes as well as S$11.8m in credit loss provisions.


  • Neutral on the results but not optimistic of a significant recovery in earnings in FY22. We are encouraged by the sequential improvement in EBITDA even with reduced government grants. However, SATS still faces significant challenges as borders remain closed and government grants are estimated to decline by at least 60% y-o-y in FY22.
  • We also do not expect SATS's earnings to improve to pre-pandemic levels until after FY24.


  • We lower our FY22 earnings estimate for SATS by S$132m as we factor in slower border openings and higher raw material costs.



  • Opening up of borders.

K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-28
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.09 DOWN 4.270