SATS - CGS-CIMB Research 2021-10-18: Travel Demand Pent Up But Priced In

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

SATS - Travel Demand Pent Up But Priced In

  • We expect SATS (SGX:S58)’s aviation food revenue to recover to > 60% of pre-COVID-19 level by Oct-Dec 2022F. It may only return to normal levels in 2023F. Its ground handling and cargo revenues should recover faster on the back of resumption of passenger flights, and higher belly freight capacity.
  • SATS's share price has re-rated by ~42% in past 12 months; we think the recovery theme is now priced in. Downgrade to HOLD, with a higher target price.

Pent up demand for travel, but there is cap for now

  • Our ground checks found that one in five people in Singapore thinks of travelling following the Singapore government’s 9 Oct announcement that its Vaccinated Travel Lane (VTL) scheme will expand from two countries to 11 effective 19 Oct. The additions are the US, Canada, Denmark, France, Italy, Netherlands, Spain, UK, and South Korea.
  • SATS's share price has re-rated by ~5% in two days following the announcement. The sentiment is positive for SATS but the near-term benefit could be capped by the 3,000 daily VTL arrival quota.
  • Aug passenger movement in Changi Airport stood at ~6,800/day. Assuming the daily VTL arrival cap is maxed out, passenger movement in the next quarter will still only recover to ~11k-12k/day, or 6% of Changi’s pre-COVID-19 passenger traffic of ~185k/day.

Inflight catering revenue to recover to > 60% by end-CY2022F

  • We expect the VTL scheme to business returning to pre-COVID-19 levels may take longer, by end-CY2023F, in our view.

Cargo revenue to recover faster, buoyed by rise in belly capacity

  • Cargo made up ~10-15% of SATS’s group baseload for SATS’s cargo handling division.
  • With more passenger flights in the system, lifting freight capacity, SATS’s cargo handling revenue could surpass pre-COVID-19 levels by Jul-Sep 22F (FY2Q23F), in our view.

The worst seems to be over; well-reflected in its share price

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-18
SGX Stock Analyst Report HOLD DOWNGRADE ADD 4.66 UP 4.300