Report Date and Broker Information
Date: October 9, 2024
Broker: CGS International Securities Pte. Ltd.
Q2FY25 Performance Projections
SATS Ltd is expected to report a 2QFY25 core net profit of S$62m-S$65m, reflecting a quarter-on-quarter growth of 7%-12%. This is part of an ongoing trend of profit improvement, which is further supported by a robust aviation sector.
Upgraded EPS Projections
CGS International has revised SATS’s FY25F-27F EPS upwards by 7.6%-14.7%, driven by stronger-than-expected revenue momentum and a lower tax rate. These upgrades are expected to mitigate higher operating expenses. The FY25F EPS has been increased by 11.1%, FY26F by 14.7%, and FY27F by 7.6%.
Growth Drivers
SATS is benefiting from the healthy aviation industry, with air cargo demand growing by 13.6% year-on-year in July 2024 and 11.4% year-on-year in August 2024. Passenger traffic also rose by 8.0% and 8.6% during the same period. This growth is expected to contribute to an 8%-10% year-on-year revenue increase for SATS’s gateway services in 2QFY25.
The company’s food solutions business, which experienced 24.5% revenue growth in 1QFY25, is expected to continue thriving, with 70% of its revenue derived from aviation-related services.
Contract Repricing and New Fee Introduction
SATS has implemented several strategic initiatives to increase revenue. A significant portion of SATS’s contracts is up for renewal in FY25, including with its major customer Singapore Airlines (SIA), which contributed S$892.9m (17.3%) to SATS’s FY24 revenue. SATS also introduced a new cargo terminal collection fee of S$0.04/kg for inbound cargo, effective August 1, 2024, which is estimated to add S$25m in incremental revenue annually.
However, the company expects some of these revenue gains to be offset by escalating costs and the need to reinvest in workforce efficiency improvements.
Strategic Global Collaborations
SATS is expanding its service offerings through two significant global partnerships:
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Agreement with IATA:
On September 30, 2024, SATS expanded its agreement with the International Air Transport Association (IATA) to implement DG AutoCheck across its global network. This compliance solution, which automates the process for handling dangerous goods, is expected to improve operational efficiency, reduce errors, and lower processing times by up to 50%.
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Collaboration with Sinoair:
On September 20, 2024, SATS announced a collaboration with Sinotrans Air Freight Co Ltd (Sinoair). This partnership will focus on strategic ground and cargo handling projects, including the development of gateway hubs in Singapore, Malaysia, Indonesia, Saudi Arabia, and Belgium. Additionally, SATS is in discussions to manage a new eCommerce hub in Hangzhou, China, which is expected to be operational by 2026.
Dividend and Share Price Outlook
The report reiterates a “Add” rating for SATS Ltd, with a revised discounted cash flow-based target price (TP) of S$4.40, up from the previous S$4.10. This reflects a potential 16.9% upside from the current share price of S$3.76. SATS’s forward P/E for FY3/26F is estimated at 18.5x, which is below its historical average of 20x.
Key re-rating catalysts include the declaration of an interim dividend and clarity on SATS’s 5-year strategic plan, which will be unveiled during its Capital Markets Day on November 8, 2025.
ESG Performance
SATS maintained a B- LSEG ESG combined score for FY23. Notably, the company improved its environmental score from C to C+, driven by reductions in CO2 emissions and hazardous waste. SATS is ranked second-highest among its peers in its ESG combined score and continues to focus on sustainability initiatives, such as renewable energy and sustainable packaging.
Financial Summary
- Revenue: S$1,758m in FY23A, projected to grow to S$5,641m in FY25F.
- Operating EBITDA: S$128m in FY23A, rising to S$1,063m in FY25F.
- Net Profit: S$56.4m in FY24A, expected to increase to S$256.8m in FY25F.
- Dividend: S$0.015 in FY24A, projected to increase to S$0.035 in FY25F.
Risks and Catalysts
Key risks include escalating operating expenses, a slowdown in global air travel, and a potential shift from air to sea freight for cargo. Catalysts for positive stock performance include dividend declarations and the company’s strategic growth initiatives.
This detailed financial and strategic review highlights SATS Ltd’s potential for continued growth, supported by strong performance in the aviation sector and strategic global partnerships.
