UOB Kay Hian

Monday, 26 May 2025

SATS (SATS SP): Upgraded to BUY on Strong Cargo Performance and Positive Outlook

Investment Thesis: Upgrade to BUY

• SATS has been upgraded to a BUY rating with a target price of S\$3.22, reflecting an upside of +8.2% from the current share price of S\$2.98. The previous target price was S\$2.89. [[1]]
• The upgrade is based on SATS’ FY25 core net profit of S\$260m, which slightly beat expectations due to stronger-than-expected cargo revenue in 4QFY25. [[1]]
• Management has reaffirmed its target for positive cargo volume growth in FY26, supported by new commercial wins. [[1]]
• Market sentiment toward SATS could turn more bullish if the company delivers even modest growth. [[2]]

Company Overview

• SATS is a leading food solutions provider in Asia and a global leader in aviation gateway services. [[1]]
• GICS sector: Industrials [[1]]
• Bloomberg ticker: SATS SP [[1]]
• Shares issued (m): 1,485.9 [[1]]
• Market cap (S\$ m): 4,428.0 [[1]]
• Market cap (US\$m): 3,441.1 [[1]]
• 3-mth avg daily t’over (US\$m): 13.0 [[1]]

Stock Data and Price Performance

• 52-week high/low: S\$4.08/S\$2.42 [[1]]
• Price Performance (%): [[1]]
  • 1mth: 9.2
  • 3mth: (9.4)
  • 6mth: (22.4)
  • 1yr: 17.3
  • YTD: (18.1)
• Major Shareholders %: Temasek Hldgs 40.0 [[1]]
• FY25 NAV/Share (S\$): 1.86 [[1]]
• FY25 Net Debt/Share (S\$): 2.29 [[1]]

FY25 Results Analysis

• SATS’ FY25 headline net profit of S\$243.8m (+332% yoy) was broadly in line with expectations, forming 101.6% of the full-year forecast. [[4]]
• Excluding one-off items, SATS’ FY25 core net profit of S\$260.1m (+199% yoy) is a slight beat to expectations, at 103.8% of the full-year forecast. [[4]]
• The significant yoy growth in profitability was mainly attributable to the low base as SATS was still in the early stage of post-pandemic recovery in FY24. [[4]]
• The slight beat in core earnings was mainly driven by stronger-than-projected cargo performance, which saw a 13.1% yoy growth in revenue in 4QFY25, compared with a projected 2% yoy growth. [[4]]
• In 4QFY25, industry air cargo volume rose by 2.5% yoy, while SATS beat industry average, with its air cargo tonnage handled rising 11.0% yoy as SATS continued to win market share from competitors. [[5]]

Key Financials

The following table summarizes the key financials for SATS:

[[5]]

Balance Sheet and Cash Flow Highlights

• Net gearing continues to decrease. SATS’ net gearing (excluding lease liabilities) stood at 66.6% at end-FY25, a decrease from 74.5% as of end-3QFY25 and 80.2% as of FY24, as SATS continues to use its free cash flow to pare down debts. [[6]]
• SATS’ net gearing is set to decline in the next few years, driven by further debt pare-down. [[6]]
• Management estimated that it has secured S\$103m annualised EBITDA synergy from the Worldwide Flight Services (WFS) integration, exceeding its communicated S\$100m medium-term target communicated in the WFS acquisition strategy. [[6]]
• Declared a final dividend of 3.5 S cents. Together with an interim dividend of 1.5 S cents, SATS’ FY25 total dividend stands at 5 S cents, leading to a 31% payout ratio and a FY25 full-year yield of 1.7%. [[6]]
• SATS’ dividend payment is likely to gradually improve over the next few years as SATS further pares down its debts while striking a balance between dividend distribution and debt repayment. [[6]]

Stock Impact and Management Outlook

• Overall management tone more positive than expected. Management noted that most of SATS’ cargo stations remain busy today, with volume holding up better than feared across regions; especially in Asia and Europe, SATS has not experienced any cargo weakness. [[6]]
• US air cargo volume seeing some rebound following the 90-day US-China tariff reprieve. [[6]]
• Management noted that there was a subsequent rebound in US-bound cargo volumes since the 90-day tariff reprieve was announced, and that some flights have been reinstated. [[7]]
• Freighter capacity previously allocated to e-commerce is now being backfilled by frontloaded imports of spare parts, particularly for the automotive sector, supporting volume recovery in the US market. [[7]]
• Despite the ongoing tariff uncertainties, management reaffirmed its goal of achieving overall air cargo volume growth in FY26. [[7]]
• Management shared that SATS maintains a strong pipeline of commercial negotiations and is confident in outperforming the industry’s average growth by capturing market share from competitors. [[7]]
• SATS’ well-diversified global network makes the company well-positioned to navigate volatility and seize opportunities emerging from shifting global cargo flow patterns. [[8]]
• Management has taken a proactive stance on cost control, particularly in the US where over 50% of cargo operating expenses are manpower-related. [[8]]
• SATS has identified several cost levers, including adjusting staff hours, managing bonus accruals and salary increments, and tightening discretionary spending such as travel and trade show participation. [[8]]
• The company is also reviewing non-critical headcount and is prepared to act swiftly if operating conditions deteriorate. These measures aim to preserve profitability amid potential revenue pressure. [[8]]

Earnings Revision

• FY26/27 core earnings forecasts have been raised by 15%/13%, respectively. [[8]]
• The global trade outlook has improved since the last update during the height of the tariff dispute. [[8]]
• FY26 cargo volumes are now expected to be broadly flat yoy, up from the previous projection of a single-digit yoy decline, but still more conservative than management’s growth target. [[9]]
• The forecast is S\$260m core earnings for SATS in FY26, flat yoy. [[9]]

Key Risks

• Worse-than-expected impact on global air cargo volume from further escalation of the global trade war. [[9]]

Valuation and Recommendation

• SATS has been upgraded to BUY with a higher target price of S\$3.22. [[9]]
• The 90-day tariff reprieve suggests that the industry may have avoided the worst-case scenario of sustained peak-level tariffs. [[9]]
• The target price remains based on 16.8x FY27F PE, pegged to 1SD below SATS’ historical mean PE of 19.9x. [[9]]
• The -1SD accounts for lingering uncertainties for global trade environment beyond 90 days. [[9]]
• Market sentiment towards SATS could turn more bullish if SATS is able to deliver even modest growth under current conditions. [[9]]

SATS’ Quarterly Core Earnings

SATS’ Quarterly Revenue Trend

Quarterly Meal Volume Produced

Quarterly Cargo Volume Handled

PE-Based Valuation Reference Table

[[10]]

Profit & Loss Statement

The following table presents the Profit & Loss forecast for SATS:

[[22]]

Balance Sheet

The following table presents the Balance Sheet forecast for SATS:

[[22]]

Cash Flow Statement

The following table presents the Cash Flow forecast for SATS:

[[23]]

Key Metrics

The following table presents the key metrics forecast for SATS:

[[23]]