SATS Ltd: A Deep Dive into FY29F Financial Targets and Market Opportunities

Date: November 11, 2024 | Broker: CGS International

Introduction

SATS Ltd has outlined its ambitious financial targets for FY29F during its recent Capital Markets Day. This report delves into the specifics of these targets, breaking them down by business segments, and evaluates the company’s strategies to achieve them. We also compare SATS Ltd with its industry peers, providing a comprehensive analysis of the market landscape.

FY29F Financial Targets

During its Capital Markets Day, SATS Ltd shared detailed financial targets for FY29F, including breakdowns by its different business segments. The company aims for a revenue target of S\$8bn, which requires an EPS CAGR of 9.2% over FY24-29F. Despite this being ahead of our 3-year EPS CAGR of 7.2%, the company is confident that revenue growth will be driven by both existing businesses and new offerings. SATS projects a capex budget of 5% of revenue per annum during FY24-29F, with a 60%/40% split between maintenance and expansionary capex.

Gateway Services: Increasing Wallet Share

SATS aims for S\$6bn in revenue, a 22% EBITDA margin, and a 10% EBIT margin for its gateway services segment by FY29F. The company plans to increase the wallet share of its existing customers by leveraging its extensive cargo network and ground handling stations. SATS also intends to expand into new markets where its customers operate.

Food Solutions: Expanding Fresh-Frozen Meal Capacity

SATS has identified its fresh-frozen meal (FFM) capabilities as a growth engine for its food solutions business. The segment remains under-penetrated in the Asia Pacific region, providing significant growth opportunities. SATS plans to increase the capacity of its central kitchens in Bengaluru, Tianjin, and Thailand, targeting 108k meals/day by end-FY26F.

2QFY25 Results Inspire Confidence

SATS reported 2QFY25 PATMI of S\$69.7m, bringing 1HFY25 PATMI to S\$134.7m, slightly ahead of expectations. The company observed EBITDA margin expansion in both gateway services and food solutions segments, reaching 21.0% and 15.6%, respectively. An FX loss of S\$21.6m was recognized due to the translational effect of intercompany loans, suggesting potential translation gains in 3QFY25F.

Financial Performance and Projections

Here are the key financial metrics for SATS Ltd from FY23 to FY27:

• Revenue growth from S\$1,758m in FY23 to a projected S\$6,335m in FY27.
• Operating EBITDA expected to grow from S\$128m in FY23 to S\$1,242m by FY27.
• Net profit projected to rise from a loss of S\$26.5m in FY23 to S\$356.7m in FY27.
• Core EPS to grow from S\$0.05 in FY24 to S\$0.24 by FY27.
• Dividend per share expected to increase from S\$0.015 in FY24 to S\$0.050 by FY27.

ESG Performance

SATS Ltd received a B- ESG combined score from LSEG in FY23. The company has shown improvement in its Environmental pillar, with lower CO2 emissions and hazardous waste produced. SATS continues to focus on sustainability initiatives, including smart infrastructure development, reduction of food and packaging waste, and skill development.

Comparative Analysis with Industry Peers

Malaysia Airports Holdings (MAHB)

MAHB has a Hold recommendation with a target price of S\$11.00. The company is projected to have a revenue CAGR of 32.3% over the next three years, with an EV/EBITDA ratio of 9.9x for CY24F.

Airports of Thailand (AOT)

AOT also holds a Hold recommendation with a target price of S\$62.00. The company is expected to have an EV/EBITDA ratio of 22.1x for CY24F and a dividend yield of 1.4% for the same period.

Conclusion

SATS Ltd has set ambitious financial targets for FY29F, supported by detailed strategies for its gateway services and food solutions segments. The company’s recent financial performance and ESG initiatives further bolster confidence in its growth trajectory. While industry peers like MAHB and AOT also present strong metrics, SATS’s comprehensive approach and strategic expansions position it favorably in the market.