UOB Kay Hian Research Report April 9, 2025
Tariff War Threatens to Disrupt Global Trade and Cargo Volumes
Escalating Trade Tensions Pose Risks for SATS
SATS, a leading food solutions provider and global aviation services firm, faces significant uncertainties due to the escalating trade war initiated by the United States. With substantial exposure to global and U.S. air cargo handling, SATS is poised to be negatively impacted by the potential setback in globalization and decline in international trade volumes.
U.S. Imposes Sweeping Tariffs, Sparking Retaliation
Last week, the U.S. President announced a series of tariffs targeting major trading partners in a bid to address the country’s large trade deficits. Dubbed “Liberation Day”, the new tariff structure imposes additional duties of 10-49% on imports from China, the EU, and other key Asian trading partners.
In response, China swiftly retaliated with 34% tariffs on U.S. imports, while the EU has signaled it will pursue negotiations. Many other Asian countries, however, have opted not to retaliate, instead indicating a willingness to negotiate with the U.S.
Tariffs Threaten to Disrupt Global Trade Flows
The outbreak of the trade war has rendered previous forecasts for global trade and cargo volumes obsolete. Given the U.S.’s outsized role in the global economy, accounting for 11% of world trade, the tariff hikes and potential retaliatory measures are expected to have profound negative impacts on international commerce.
This could represent a major setback to globalization, reshaping the global trade landscape and accelerating the decoupling of the U.S. and China.
SATS Faces Headwinds from Air Cargo Exposure
SATS derives around 50% of its revenue from global air cargo handling, with the U.S. being its largest market, contributing 25% of group revenue. The company is thus poised to be significantly impacted by the potential decline in international trade and air cargo volumes.
Earnings Forecasts Revised Lower
To account for the heightened uncertainties, UOB Kay Hian has tentatively reduced its projections for SATS’ air cargo handling volumes in FY2026 by 7%, incorporating a 5% cut on top of the previously expected 2% decline due to the removal of the de minimis tax exemption for China and Hong Kong.
Accordingly, the research firm has lowered its earnings forecasts for SATS by 17-18% in FY2026-2027.
Downgraded to Hold, Target Price Lowered to S$2.89
Given the escalating trade war and the potentially prolonged period of uncertainty for global trade, UOB Kay Hian has downgraded SATS to a Hold recommendation, with a lowered target price of S$2.89. This target price is based on a 16.8x multiple to FY2027 earnings, which represents a 1-standard deviation discount to SATS’ historical average P/E.
Investors are advised to closely monitor developments in the global trade landscape, as any signs of stabilization could serve as a re-rating catalyst for SATS.