SATS appears to be in an oversold condition

1. Overview and Financial Performance SATS Ltd., a leading food solutions provider in Asia and a global leader in aviation gateway services, continues to execute its growth strategy despite macroeconomic challenges. The company has set ambitious targets to achieve over S$8 billion in revenue, over 10% EBIT margins, and over 15% return on equity (ROE) by FY29.

In FY25, SATS completed two small bolt-on acquisitions:

• Acquisition of the remaining 15% ownership in SAS Food Solutions Thailand (SFST).
• Acquisition of part of Menzies Aviation’s cargo handling operations at Amsterdam’s Schiphol Airport. These acquisitions are expected to contribute to SATS’ long-term growth but will have a minimal impact on near-term earnings.

For 3QFY25, SATS is forecasted to report core earnings of S$81 million, marking a 10% quarter-on-quarter (qoq) growth and a significant 155% year-on-year (yoy) increase from 3QFY24.

2. Impact of US Tariffs and De Minimis Tax Rule Change SATS has been negatively impacted by the recent executive orders signed by US President Donald Trump, imposing tariffs on imports from China (10%), Canada, and Mexico (25%). Additionally, the elimination of the de minimis tax exemption rule, which previously allowed small packages valued under $800 to enter the US without tariffs, is expected to significantly affect cross-border e-commerce and air cargo demand.

As cross-border e-commerce is a major driver for global air cargo (25% of total volume), and given that air cargo handling contributes to 50% of SATS’ revenue (with 50% of that derived from the US market), the impact on earnings is expected to be material. The worst-case scenario projects a 30% reduction in US cross-border e-commerce air cargo volume, potentially reducing SATS’ group revenue by 2% in FY26-27, with a high single-digit earnings impact.

3. Earnings Forecast and Valuation

• FY25 core earnings estimate remains unchanged at S$277 million.
• FY26/27 core earnings have been cut by 7% to S$277 million and S$326 million, respectively, due to macroeconomic challenges.
• The company expects flat earnings in FY26 due to continued global trade risks under Trump’s administration, with a return to year-on-year (yoy) growth in FY27.

Valuation and Recommendation:

• SATS currently trades at 18.1x FY26F PE and 15.4x FY27F PE.
• The target price has been adjusted to S$4.00, based on an 18.4x FY27F PE valuation, which is 0.5 standard deviations (SD) below its historical mean PE of 19.9x.
• The negative impact of tariff and tax rule changes is likely already priced in, making SATS an attractive long-term investment despite near-term risks.

4. Key Financial Metrics (S$ Million)

5. Risks and Outlook

• Key Risks:
  • Greater-than-expected impact from US tariff hikes and de minimis tax rule changes.
  • Further escalation of global trade tensions negatively affecting air cargo demand.
  • Normalization of the Red Sea situation leading to more air cargo shifting back to ocean transportation.
• Investment Outlook:
  • Despite short-term challenges, SATS maintains a strong long-term growth potential with a diversified portfolio and strategic acquisitions.
  • The company’s balance sheet remains stable, and its earnings power is expected to recover post-FY26.
  • Investors should consider SATS as a long-term investment opportunity, leveraging its leadership in the aviation and food solutions industry.

6. Conclusion SATS is well-positioned for long-term growth despite near-term challenges posed by US trade policies and global macroeconomic factors. The company’s strong fundamentals, ongoing expansion strategy, and historical resilience make it a compelling investment at current valuation levels. The recommendation remains a BUY, with a revised target price of S$4.00.

From a technical analysis perspective, SATS appears to be in an oversold condition. The stock price has the potential to rebound to $3.46, followed by $3.58, presenting investors with an opportunity for an upside of 3.5% to 7%  range over the next few weeks.

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