OCBC Investment Research (OIR) analyst Ada Lim has kept her “buy” call on Sats but with a lowered fair value (FV) of $3.93 from $4.11 previously.
As part of its next phase to drive value creation and sustainable growth, the group has previously indicated a goal to grow its revenue above $8 billion by FY2029, along with earnings before interest, taxes, depreciation and amortisation (ebitda) margin and return on equity (ROE) of at least 20% and 15%, respectively.
Sats has highlighted a strategy of strengthening its leadership in the global cargo market, through growing its share of strategic customers across the network and creating incremental value along the supply chain, as well as sustaining its position as Asia’s top aviation caterer, while also penetrating deeper into high value segments of ready-to-eat meals in key markets.
“Much will be dependent on management’s ability to execute, in our view, and we keep an eye out for Sats’ growth trajectory in subsequent quarters as well as portfolio developments for further re-rating catalysts,” writes Lim in her Mar 18 note.
The analyst notes that the group’s fourth quarter tends to be seasonally weak, with the q-o-q decline usually driven by the drop-off in cargo volumes post-holiday season in its gateway services business. Its food solutions segment, meanwhile, could also see a dip on lower passenger volumes given the lack of major holidays globally during the January to March period.
Lim continues: “This seasonal trend has been distorted in recent years as a result of the Covid-19 pandemic and integration of Worldwide Flight Services (WFS). However, we see reasons for this trend to return in FY2025.”
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According to Lim, importers have frontloaded good shipments from China into the US ahead of the new year in anticipation of tariffs against China, as well as to avoid the Lunar New Year celebrations, which were earlier this year.
As a result, according to S&P Global’s Port Import/Export Reporting Service (PIERS), US imports from Asia were up 10.5% y-o-y in October 2024.
“The seasonal drop may also be accentuated by Sats’ greater exposure to cargo handling post-WFS acquisition, with gateway services contributing to 78.5% of FY2024 revenue versus just 44.8% in FY2020,” writes Lim.
She continues: “Taking this into consideration, we dial back on our forecasts for FY2025 revenue, as well as share of results from associates and joint ventures (SoAJV) ahead of Sats’ full year results.”
While the analyst believes ongoing tariffs and the removal of the “de minimis” exemption by US President Donald Trump will have an impact on the group’s business, she adds that it is still premature to quantify the effects.
Sats’ management is confident that its well-diversified network and customer base will allow the group to better manage this impact as compared to its peers.
Lim concludes: “Until there is further clarity around the evolving situation, we expect Sats’ share price performance to remain fairly muted in the near term.”
As at 4.26 pm, shares in Sats Group are trading 2 cents lower or 0.65% down at $3.05.
