SATS - OCBC Investment 2022-02-25: Beneficiary Of Borders Reopening

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SATS LTD. (SGX:S58)

SATS - Beneficiary Of Borders Reopening

• Non-travel revenue made up 43% of total revenue.
• Air cargo remained resilient.
• Will benefit from borders reopening.

Core net profit of S$5.1m in 3QFY22

• SATS (SGX:S58)’s 3QFY22 revenue rose 22.6% y-o-y to S$307.8m, backed by growth in both travel and non-travel revenues. Operating expenditure rose 28.2% y-o-y to S$317.3m due to higher staff cost on the back of lower JSS support and higher contract services and business activities.
• The share of profit from associates/JVs rose more than fivefold to S$12.1m during the quarter. The group reported a fourth consecutive quarter of core profit of S$5.1m, below our full-year forecast due to ~S$11m in bad debt provisions.
• Excluding the impact of government reliefs of S$38.1m, SATS's PATMI would have been a loss of S$33.0m.

Improvement in operating statistics as traveldemand recovers

• Operating statistics continued to improve in 3QFY22 as the global aviation industry recovers. On a q-o-q basis, SATS’s flights handled more than doubled (at ~30% of pre-COVID-19 levels), while passengers handled grew by four times to 3.6m in 3QFY22.
• Cargo remained the bright spot and rose 9% q-o-q due to strong demand from e-Commerce, and temperature sensitive supplies such as vaccines and perishables. The majority of SATS’s cargo associates were profitable in 3QFY22. Cargo revenue grew 26.1% y-o-y and 4.1% q-o-q, contributing to 17% of total revenue growth in the quarter.
• Management expects cargo to remain the key growth driver moving forward as e-Commerce demand grows. On the other hand, meals served saw a decline of 3% q-o-q. The number of employees increased by 1k in 3QFY22 as air travel demand returns.

Support from non-aviation business

• We lower our estimates for SATS to account for higher wages and cost pressure given inflationary pressure. Nevertheless, we continue to see SATS as a beneficiary of progressive borders reopening in Singapore and globally, a gradual recovery of air travel, and strong cargo performance due to e-Commerce demand.
• After adjustments, our fair value estimate for SATS decreases from S$4.80 to S$4.77.
• See
  • SATS's Share Price,
  • SATS's Target Price,
  • SATS's Analyst Reports,
  • SATS's Dividend History,
  • SATS's Announcements,
  • SATS's Latest News.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2022-02-25

SGX Stock Analyst Report BUY MAINTAIN BUY 4.77 DOWN 4.840