They expect global air cargo demand to decline 10% y-o-y in this calendar year with the reciprocal tariffs and tit-for-tat retaliation between the US and its trading partners.
The potential economic fallout could also lead to softer global air travel demand, affecting Sats’s ground-handling and aviation catering businesses.
As of 9MFY2025 ended Dec 2024, 92% of SATS’s revenue was exposed to the aviation industry, with 50% through its cargo-handling business, 26% through its ground-handling business and the remaining 16% through its aviation food business.
International Air Transport Association, there was an average y-o-y drop of 8.8% in monthly cargo demand between March 2022 and July 2023 when e-commerce volumes dropped following the pandemic.
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Citing this trend, Tay and Lim estimate that Sats might see its cargo volumes drop 10% in the coming FY2026 ending March 2026 amid this trade war.
In addition, the economic downturn brought about by the trade war will likely hurt travel demand as well.
As such, they assume Sats's ground-handling business will see volumes remain flat y-o-y in FY2026.
The volume growth of its food solutions business, meanwhile, will be halved as the volume decline for aviation food is offset by the growing contribution of its non-aviation food subsegment with the ramp-up of its central kitchen operations across China, Thailand and India, which should be sheltered from global macroeconomic headwinds, they add.
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Taking into account these assumptions, the analysts have trimmed their FY2026 and FY2027 earnings estimates by 13.6% and 12.8% respectively amid this "softer" business environment.
Their discounted cash flow-based target price is thereby lowered to $3.05, implying 6x FY2026 EV/EBITDA.
According to Tay and Lim, they have maintained their "add" call on the premise of Sats's improved cash flow generation since its acquisition of Worldwide Flight Services in FY2023.
"We also believe SATS’s growing network will position it for market share gains to support better profitability beyond FY2026," the analysts write.
Re-rating catalysts include resilient trade volumes and resolution of tariff tensions between the US and its trade partners.
On the other hand, downside risks include that of a global recession that leads to a greater-than-expected decline of the aviation industry and the delayed ramp-up of utilisation at its new central kitchens, leading to softer margins.
Sats shares changed hands at $2.61 at 2.51 pm, down 1.51%.
