SATS 1QFY22 - UOB Kay Hian 2021-07-23: Lower Associate Losses & Tax Credit Lead To Q-o-q Improvement

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SATS 1QFY22 - Lower Associate Losses & Tax Credit Lead To Q-o-q Improvement

  • Operating profit declined q-o-q, despite flat revenue, mainly due to lower grants and higher staff costs. Bottom-line however was lifted by lower associate losses and tax credit, which was not disclosed. SATS (SGX:S58) was also cash flow positive for the quarter.
  • SATS guided that it is attempting to grow non-travel related revenue, but margins are estimated to be low.
  • Maintain HOLD.

SATS reported better-than-expected earnings with 2 consecutive quarters of profits.

  • While revenue was flat q-o-q, SATS's operating profit was lower q-o-q partly due to a S$9m reduction in government grants. Bottom-line was aided by a steep reduction in associate losses out of ASEAN and the recognition of tax credit.
  • SATS indicated that all cargo and gateway JVs were profitable.
  • SATS also recognised S$42m in government grants in 1QFY22, S$9m lower q-o-q. Excluding grants and other relief measures, SATS’s 1QFY22 core net loss would have been S$35.6m (S$45.4m in 4QFY21).
  • SATS generated S$26.9m in operating cash flow during the period and also repaid S$150m in term loans.

Aims to grow non-travel related revenue, which in 1QFY22 amounted to 46% of group revenue.

  • This constitutes the provision of non-aviation security services to the Home Team would be exported. This holds scope for margin improvement as Food City was in the red in 2020.

Expects sequential reduction in government grant payouts for the next three quarters.

  • The quantum of payout for FY22 was expected to be less emphasised that it is focused on upskilling staff through job redesign to harness technology and improve productivity.

The reduction in SATS's associate losses was the key positive.

  • This came mainly out of ASEAN, where cargo JVs recorded lower apron services.

Maintain HOLD rating on SATS

K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-07-23
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.090 SAME 4.090