Comprehensive Analysis of SATS Ltd
Broker: CGS International
Date of Report: February 23, 2025
Overview
SATS Ltd has shown a remarkable recovery in its financial performance, largely attributed to the ongoing recovery in the aviation industry. This report delves into the financial metrics, operational insights, and the external factors affecting SATS’s future growth trajectory.
Financial Performance
SATS reported a net profit of S\$70.4 million in 3QFY25, marking a substantial increase of 124.2% year-over-year and a slight 1.0% increase quarter-over-quarter. The company’s revenue in the first nine months of FY25 reached S\$1.52 billion, reflecting a 12.5% year-on-year growth. This robust performance suggests that SATS is gaining market share due to the expansion of its network following the acquisition of Worldwide Flight Services (WFS).
EBIT and Margins
Despite the growth in revenue, SATS experienced a compression in EBIT margins, which declined by 0.4 percentage points to 8.4% in 3QFY25. This decline was primarily due to an accrual of staff bonuses for the first nine months of FY25. Management indicated that without this accrual, the EBIT margins would have been significantly higher at 9.2%. The company’s EBIT for 9MFY25 amounted to S\$367.4 million, an increase of 136.4% year-over-year.
Revenue Composition
The revenue generated from food solutions reached S\$356.7 million in 3QFY25, growing by 21.1% year-over-year, while gateway services contributed S\$1.17 billion, an 8.9% increase from the previous year. Notably, cargo services constituted approximately 50% of SATS’s revenue, a segment that management believes could experience volatility due to ongoing trade tensions.
Outlook and Risks
In light of the potential escalation of trade tensions, management has expressed concerns regarding the stability of global cargo demand. The company noted some cancellations in orders in January 2025 tied to U.S. tax policy considerations. This raises the possibility of earnings volatility in the coming years.
Revised Estimates and Target Price
Due to the uncertain macroeconomic landscape, CGS International has lowered its FY25-FY27 EPS estimates by 4.1% to 7.5%. Consequently, the target price for SATS has been revised down to S\$4.35 from S\$4.40. The report maintains a recommendation of “Add,” highlighting the expected continued growth driven by improved utilization of new central kitchens in China, India, and Thailand.
Valuation Metrics
The report provides a detailed financial summary with key metrics for the upcoming fiscal years, including revenue, EBITDA, net profit, and core EPS. For FY25F, SATS is projected to generate S\$5.64 billion in revenue, with an operating EBITDA of S\$1.04 billion and a net profit of S\$247 million.
Dividends and Returns
SATS plans to pay a dividend of S\$0.030 in FY25, reflecting a yield of 0.91%. The report notes that the company’s dividend policy balances the need for reinvestment in business growth with returning value to shareholders.
ESG Insights
SATS received a combined ESG score of B- from LSEG. The company has made strides in environmental initiatives, with a reduction in CO2 emissions and a commitment to sustainability. The report emphasizes that SATS’s ongoing efforts in renewable energy and sustainable practices could enhance its operational efficiency and margins over time.
Conclusion
In conclusion, SATS Ltd’s impressive growth in revenue and net profit reflects its strong position in the recovering aviation market. However, potential risks from trade tensions and revised earnings forecasts suggest a cautious outlook. Investors are advised to monitor the company’s performance closely while considering the strategic actions it takes in response to external challenges.
