Roy Chen of UOBKH notes that the $70.9 million net profit in the period was “broadly in-line” with his expectation, forming 27.3% of his full-year forecast.
The increase in revenue was driven by higher revenue from SATS’s food solutions segment and gateway services segment. Within the gateway segment, cargo revenue grew 12.2% y-o-y, on the back of a 10.4% y-o-y growth in volume and a 1.7% y-o-y improvement in cargo handling average selling price (ASP).
Key factors noted by Chen driving the group’s y-o-y earnings improvement include its contract renewal with Singapore Airlines Group (SIA), the frontloading of US-bound general and e-commerce air cargo from China and the rest of the world ahead of the US’ removal of de minims tax exemption and lastly, SATS’ stronger cargo volume growth, which is above industry average.
SATS’ net gearing meanwhile fell to 64.4% in the period from 66.6% as at end FY2025, as the group continues to pare down debts. “SATS’ net gearing is set to decline in the next few years, driven by further debt pare-down,” adds Chen.
On the group’s cargo volume by tonnage in the 1QFY2026, the UOBKH analyst notes that SATS has “outperformed” the industry trend for seven consecutive quarters, with its 10.4% y-o-y growth in the period beating the International Air Transport Association’s (IATA) industry-wide cargo traffic growth of 2.9% y-o-y during the same quarter.
He writes: “In the North American market where the tariff war has been a key concern, SATS managed a 1.0% y-o-y positive growth in cargo volume in 2QFY2026, whereas the North American market’s total cargo volume dropped by a low-to-mid single-digit percentage y-o-y during the same quarter, based on IATA’s data.”
On the group’s food solutions segment, aviation meal volumes produced in the 1QFY2026 grew 5.8% y-o-y, driven by growing demand underpinned by continued growth in regional passenger air traffic, while non-aviation meal volume dropped 11.0% y-o-y, which Chen attributes to the consolidation of previous operations in Kunshan into SATS’ Tianjin central kitchen.
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Overall, SATS’ management expects a continued outperformance of industry benchmarks, leveraging the group’s global reach, network and strong customer relationships.
“The food solutions segment to benefit from increased regional demand for authentic, high-quality aviation meals, and the gateway service segment to remain resilient,” writes Chen.
SATS’ cargo business has also maintained a strong momentum of new customer contract wins, with Cathay Pacific, Emirates, Riyadh Air and Turkish Airlines recently added to its customer portfolio.
Chen adds: “Management noted that SATS has a good pipeline of contract negotiations with potential new customers and is expected to announce more contract wins in the remainder of FY2026.”
With regards to 2QFY2026 cargo performance, SATS’ management expects quarter-to-date metrics to remain “robust”, with the European market continuing to be a “key bright spot” in terms of cargo volume growth.
The US market is showing some q-o-q improvement, which is in-line with industry observations.
Chen writes: “According to Air Cargo News, demand from China to the US increased 5% y-o-y in the week ending Aug 10, marking the first yoy increase since mid April. Given the likely resilient 2QFY2026 cargo operations, we expect an overall steady 2QFY2026 financial performance for SATS.”
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SATS is also working on a capital return enhancement strategy, which the analyst thinks is “likely to be a balanced strategy” with better clarity covering all aspects including dividend, capital expenditure (capex) for growth and debt repayment.
Key catalysts noted by him include organic business volume growth and potential bolt-on acquisitions while key risks include weaker-than-expected global air cargo volume growth amid tariff uncertainties and a possible global economic slowdown.
DBS’s Jason Sum notes that both of SATS business segments saw an increase in operating margins. Earnings before interests and taxes (ebit) margins for the gateway services segment and food solutions segment expanded by 1.0 percentage point (ppts) and 0.8 ppts respectively, helped by improved unit revenue, a favourable mix and operating scale.
“This was despite tariff-related volatility in the US which created stop-start cargo flows, which complicated labour planning,” adds Sum.
He expects food solutions margins to continue to improve, not only from higher frozen meal volumes in China, India and Thailand, but also from a shift in the Singapore kitchen model.
He writes: “In Singapore, the inflight kitchen is being converted into an assembly driven operation, which reduces reliance on heavy kitchen equipment and shifts more production to overseas factories, allowing future growth at a lower capex.”
Sum adds that Nanjing Weizhou kitchen in China is already near full utilisation with new contracts such as Starbucks, while the kitchen in India is “moving gradually” toward frozen meals with volume expected to ramp once stock keeping units (SKU) are finalised. In Thailand, he notes that the Phase 1 kitchen is fully utilised with Phase 2 due to expand output about five-fold by early 2026.
“Overall, we expect these developments should lift both revenue and margins as utilisation rises and the new model takes hold,” writes Sum.
SATS’ management also expects finance costs to fall further, providing additional support to bottom line growth. The group has repaid some $125 million of debt year-to-date and is targeting around $200 million of de-leveraging in FY2026, similar to last year. This will come hand-in-hand with the recent $300 million bond issued at a 2.45% fixed rate.
Overall, Sum believes the “risk-reward” for SATS remains attractive. “We believe the market is overly focused on a potential slowdown in global air cargo volumes, underestimating SATS’ ability to consistently secure new contracts, deepen existing partnerships, and expand value-added services,” writes the DBS analyst.
For CGSI’s Tay Wee Kuang and Lim Siew Khee, they believe the group will continue to outpace industry growth, especially for its cargo handling sub-segment, which made up around 52% of revenue in the 1QFY2026. The pair have tweaked their FY2026 to FY2027 earnings per share (EPS) upwards by 1.1% to 1.4% on the back of better revenue momentum, driven by the growth of its gateway services business.
Re-rating catalysts noted by them include a pick-up in revenue momentum for its food solutions business and expanded footprint for its cargo operations on the back of new contract wins. Conversely, a downside risk is margin compression from weaker operating leverage due to softening cargo volumes.
Not unlike their peers, OCBC Investment Research’s (OIR) Ada Lim and Citi Research’s (Citi) Kaseedit Choonawat have also kept their “buy” calls on the stock, albeit at an unchanged fair value and target price of $3.73 and $3.84 respectively.
“Much will be dependent on management’s ability to execute, in our view, especially amidst global trade uncertainty, and we keep an eye out for SATS’ growth trajectory in subsequent quarters for further re-rating catalysts,” writes Lim.
She adds that the group’s free cash flows for the quarter were impacted by a delayed customer payment, which was subsequently settled on July 1, to which management expects to be a one-off event.
Key risks noted by her include sudden trade policy changes and a deterioration in travel sentiment.
Citi’s Choonawat meanwhile expects a “positive share price reaction” following the group’s strong results and its beating of the industry’s cargo volume growth.
For him, key downside risks include ongoing consumption shifts to services and the US blocking of the de minimis law, which could see the expected strong freight demand in 2025 to soften, labour cost pressure, aggressive trade protectionism from the West slowing air-cargo demand, potential delays in global aircraft deliveries and finally, SATS’ “overly aggressive” capex that further pushes out shareholders’ returns.
The only analyst to have a different take on the stock is PhillipCapital’s Liu Miao Miao, who has downgraded her call to “accumulate” from “buy” at a raised target price of $3.66 from $3.58 previously.
She notes that this was due to SATS’ recent share price appreciation, which has risen 0.92% over the past five days to $3.28 as at Aug 25.
“We expect future share price catalysts to come from a potential increase in the dividend payout ratio, supported by resilient profit after tax and minority interests (patmi) and strong operating cash flow of $54 million. Consequently, we raise our payout ratio forecast to 35%, implying an FY2026 dividend per share (DPS) of 5.8 cents,” writes Liu in her Aug 22 report.
As at 1.01pm, shares in SATS are trading one cent higher or 0.31% up at $3.27.
