SATS - OCBC Investment 2022-07-25: Near-Term Cost Pressure

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

SATS - Near-Term Cost Pressure

  • SATS reported PATMI loss of S$22.5m in 1QFY23.
  • Higher operating expenditure outpacing the growth in revenue.
  • Recovery is expected to accelerate in 2HFY23.

Recovery underway but impacted by lingering cost pressure

  • SATS (SGX:S58)’s 1QFY23 revenue rose 36.2% y-o-y to S$375.5m, mainly driven by the recovery in the travel segment and consolidation of Asia Airfreight Terminal (AAT), partially offset by the non-travel segment (-17.1% y-o-y) due to the cessation of contracts from Singapore’s quarantine facilities business.
  • Despite the growth in revenue, operating expenditure rose 50.6% y-o-y to S$409.8m, largely due to higher staff costs and lower government reliefs. As such, SATS's 1QFY23 PATMI came in at a loss of S$22.5m, as compared to a gain of S$6.4m in 1QFY22, partially offset by higher share of profit from associates/JVs.
  • Excluding the impact of government reliefs of S$11.3m, PATMI would have been a loss of S$31.9m (narrowed by 25% q-o-q).

Ramping-up hiring to support operations

  • Number of SATS's employees increased 33% y-o-y to 14.6k in 1QFY23 (80% of its pre-COVID levels), partly due to the consolidation of ATT as well as hiring to support passenger operations and meal production ahead of a full recovery. We expect further increase in number of employees as SATS invests ahead to prepare for future recovery in Singapore and China, together with expansion of food business overseas, though hiring could be partly offset by higher productivity and cross-training programmes of employees.
  • Note that Changi Airport’s Terminal 4 will resume operations in Sep 2022 and southern wing of the Terminal 2 departure hall will also reopen in Oct 2022. Given the impact of inflationary pressure, SATS is working to pass on part of its higher raw materials costs to their customers and is flexible to substituting different and cheaper raw materials for their meals.

Operating statistics continued to improve

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2022-07-25
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