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text Download Copy code 1SEO title: SATS Ltd (SATS SP): Embedded Resilience & FY26F Outlook | CGS International Report 2 3Here’s a summary of the SATS Ltd (SATS SP) analysis from the CGS International report: 4 5* **Recommendation:** The report reiterates an “Add” rating for SATS Ltd with a higher target price (TP) of S\$3.60 [[1]]. 6* **Financial Performance:** 4QFY3/25 net profit was S\$38.7m, slightly ahead of estimates. Revenue growth remained consistent. SATS’s cargo tonnage has outpaced global cargo demand, indicating market share gains [[1]]. 7* **FY26F Outlook:** SATS’s growing market share is expected to support earnings growth in FY26F, even with potential trade tensions. Cargo volumes are expected to grow due to market share gains, offsetting potential softening cargo demand in the latter half of FY26F [[1]]. 8* **Earnings Estimates:** FY26F-27F EPS estimates are lifted by 7.9-8.5%, and FY28F estimates are introduced, implying a 3-year earnings CAGR of 15.0% [[1]]. 9* **Valuation:** The TP of S\$3.60 implies 17.3x FY27F P/E, similar to its pre-Covid-19 mean [[2]]. 10* **Key Risks:** Margin compression from weaker operating leverage due to softening cargo volumes and a decline in the aviation travel industry due to an economic downturn [[1]]. 11* **ESG:** SATS maintains a B- ESG combined score by LSEG, with a slight improvement in its Environmental pillar score [[5]]. 12* **Financial Summary:** Revenue, Operating EBITDA, and Net Profit are projected to increase through Mar-28F. Core EPS is also expected to grow [[1]]

Posted on May 27, 2025 at 8:48 am (GMT+8)

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CGS International

May 26, 2025

SATS Ltd: Embedded Resilience to Tide Through FY26F – Market Share Gains Offset Global Cargo Weakness

SATS Ltd: Overview of 4QFY3/25 Performance

  • SATS Ltd reported a 4QFY3/25 net profit of S\$38.7m, an 18.3% year-over-year increase, slightly surpassing the estimated S\$34.2m [[1]].
  • This performance occurred despite a lower contribution from share of associates and joint ventures (SoAJV) and impairment costs [[1]].
  • The company’s cargo tonnage handled has exceeded global cargo demand since 3QFY24, indicating market share gains [[1]].
  • SATS’s increasing market share is expected to bolster earnings growth in FY26F, even amidst ongoing trade tensions with the U.S. that threaten global cargo demand [[1]].
  • The recommendation is to Add, with a higher DCF-based (WACC: 12.2%) target price of S\$3.60 [[1]].

Consistent Revenue Growth in 4QFY25

  • SATS announced 4QFY25 revenue of S\$1.48bn, a 10.4% year-over-year increase, consistent with FY25 performance (1QFY25 to 3QFY25 revenue grew 12.5-15.5% year-over-year) [[1]].
  • However, the 4QFY25 net profit of S\$38.7m (+18.3% year-over-year/-45.0% quarter-over-quarter) was lower than the prior three quarters’ S\$65.0m-S\$70.4m due to a lower SoAJV contribution of S\$21.4m (-30.7% year-over-year/-22.5% quarter-over-quarter) due to higher bonuses and an impairment of S\$7.9m, mainly attributed to its cruise business in Hong Kong [[1]].
  • EBIT margin also declined by 1.0% pts quarter-over-quarter to 7.3% in 4QFY25, likely due to higher leases from expanded cargo operations across John F. Kennedy International Airport and Schiphol Airport [[1]].
  • SATS declared a final DPS of 3.5 Scts, bringing FY25 total DPS to 5.0 Scts, representing a payout ratio of 30.6%, exceeding the expected FY25F DPS of 3.0 Scts based on a 20% payout ratio [[1]].

Market Share Gains Offset Global Cargo Weakness in FY26F

  • SATS’s cargo tonnage handled saw year-over-year growth that outpaced the International Air Transport Association’s (IATA) reported global cargo demand growth since 3QFY24 by an average of 5.5% pts, suggesting market share gains by SATS [[2]].
  • Despite escalating trade tensions between the U.S. and its trading partners since Liberation Day in April, SATS observed continued volume growth, likely due to supply chain re-routing and front-loading effects from the temporary trade truce between the U.S. and China [[2]].
  • Management noted that the decline in e-commerce shipment volumes had been offset by an increase in automotive spare parts shipments, while demand for time-sensitive shipments, such as fast fashion products, is likely to remain resilient for FY26F [[3]].

Reiterating Add Recommendation with Higher Target Price

  • The Add call is reiterated based on the belief that SATS will continue to experience cargo volume growth in FY26F due to market share gains, even if cargo demand softens in the latter half of FY26F [[3]].
  • FY26F-27F EPS estimates are increased by 7.9-8.5%, and FY28F estimates are introduced, implying a 3-year earnings CAGR of 15.0% [[3]].
  • Potential catalysts include expanded footprint for cargo operations supporting new contract wins and faster utilization of new central kitchens across China and India [[3]].
  • Downside risks include margin compression from weaker operating leverage due to softening cargo volumes and a decline in the aviation travel industry due to an economic downturn [[3]].

SATS: Key Financial Metrics and Ratios

  • Current price: S\$2.98 [[3]]
  • Target price: S\$3.60 [[3]]
  • Previous target: S\$3.05 [[3]]
  • Up/downside: 20.7% [[3]]
  • CGSI / Consensus: -5.1% [[3]]

Major Shareholders

  • Temasek Holdings: 40.4% [[3]]

Key Changes in This Note

  • Increased FY26F EPS by 7.9% [[3]].
  • Increased FY27F EPS by 8.5% [[3]].
  • Introduced FY28F estimates [[3]].

Price Performance

  • 1M Absolute (%): 7.2, Relative (%): 0.9 [[3]]
  • 3M Absolute (%): -9.7, Relative (%): -11.3 [[3]]
  • 12M Absolute (%): 17.8, Relative (%): -12.3 [[3]]

Financial Summary

(S\$m) Mar-24A Mar-25A Mar-26F Mar-27F Mar-28F
Revenue 5,150 5,821 6,015 6,307 6,775
Operating EBITDA 781 1,036 1,098 1,176 1,271
Net Profit 56.4 243.8 262.4 312.7 371.5
Core EPS (S\$) 0.05 0.16 0.18 0.21 0.25
Core EPS Growth 201% 11% 19% 19%
FD Core P/E (x) 56.62 18.95 17.09 14.34 12.07
DPS (S\$) 0.015 0.050 0.055 0.065 0.070
Dividend Yield 0.50% 1.68% 1.85% 2.18% 2.35%
EV/EBITDA (x) 7.99 5.81 5.25 4.67 4.01
P/FCFE (x) 6.57 7.11 8.33 8.04 6.64
Net Gearing 80.6% 66.6% 54.9% 44.0% 30.9%
P/BV (x) 1.87 1.72 1.60 1.49 1.37
ROE 3.3% 9.5% 9.8% 10.9% 11.9%

Valuation Analysis

  • The target price of S\$3.60 implies a 17.3x FY27F P/E, which is similar to its pre-Covid-19 mean [[2]].
  • This valuation reflects SATS’s current net debt position post-acquisition of Worldwide Flight Services (WFS) against its pre-Covid-19 net cash position [[2]].

Detailed Results Comparison

FYE Mar (S\$m) 4QFY25 4QFY24 yoy % chg 3QFY25 qoq % chg Prev. FY25F
Revenue 1,476.7 1,337.7 10.4% 1,523.3 -3.1% 5,641.4
– Food solutions 331.1 297.3 11.4% 356.7 -7.2% 1,196.0
– Gateway services 1,145.5 1,028.9 11.3% 1,166.6 -1.8% 4,445.4
EBITDA 257.5 220.5 16.8% 263.9 -2.4% 1,037.6
EBITDA margin (%) 17.4% 16.5% 1.0% pts 17.3% 0.1% pts 18.4%
EBIT 108.3 88.8 22.0% 127.3 -14.9% 477.7
EBIT margin (%) 7.3% 6.6% 0.7% pts 8.4% -1.0% pts 8.5%
Associates/JVs 21.4 30.9 -30.7% 27.6 -22.5% 120.0
Net profit/(loss) 38.7 32.7 18.3% 70.4 -45.0% 246.5
FYE Mar (S\$m) FY25 FY24 yoy % chg Prev. FY25F % of est. Bbg cons est. % of est. Comments
Revenue 5,821.1 5,149.6 13.0% 5,641.4 103.2% 5,620.0 103.6% FY25 revenue was slightly ahead of expectations at 103.2%/103.6% of our/Bloomberg consensus’ FY25F estimates due to stronger revenue momentum for food solutions segment.
– Food solutions 1,351.4 1,107.9 22.0% 1,196.0 113.0%
– Gateway services 4,469.4 4,041.2 10.6% 4,445.4 100.5%
EBITDA 1,036.2 780.6 32.7% 1,037.6 99.9% 999.1 103.7%
EBITDA margin (%) 17.8% 15.2% 2.6% pts 18.4% -0.6% pts
EBIT 475.7 244.2 94.8% 477.7 99.6% 426.5 111.5%
Associates/JVs 114.3 110.0 3.9% 120.0 95.3%
Net profit/(loss) 243.8 56.4 n.m. 246.5 98.9% 246.3 99.0%
Exceptionals (0.7) (22.1) n.m. 7.2 n.m. SATS recognised one-off gains of S\$7.2m in 1HFY25, but was offset by S\$7.9m in losses in 2HFY25.
Core net profit/(loss) 244.5 78.5 n.m. 239.3 102.2% 246.3 99.0% FY25 core net profit of S\$244.5m was in line at 102.2%/99.0% of our/Bloomberg consensus’ FY25F estimates.
  • Revenue grew 10.4% year-over-year to S\$1.48bn in 4QFY25, supported by robust growth across both food solutions and gateway services segments [[2]].
  • 4QFY25 EBIT grew 22.0% year-over-year, benefiting from better operating leverage, but declined 14.9% quarter-over-quarter as a result of a seasonally weaker quarter for business volumes for cargo business [[2]].
  • Contribution from associates and joint ventures fell 30.7% year-over-year/22.5% quarter-over-quarter in 4QFY25 due to bonus accrual from good financial performance [[2]].
  • 4QFY25 net profit of S\$38.7m was slightly ahead of the estimated S\$34.2m due to stronger-than-expected revenue momentum from the food solutions business [[2]].
  • SATS also recognized non-operating expenses of S\$7.9m in 4QFY25 due to an impairment on its Hong Kong cruise business [[2]].

Earnings Revision

S\$m FY26F FY27F FY28F
New Old % change New Old % change New Old % change
Revenue 6,014.7 5,465.6 10.0% 6,307.3 5,730.0 10.1% 6,775.1 N.A. N.A.
Operating EBIT 514.3 472.3 8.9% 559.6 515.8 8.5% 619.3 N.A. N.A.
EBITDA 1,098.2 1,070.6 2.6% 1,176.3 1,143.7 2.8% 1,270.9 N.A. N.A.
Associates contribution 120.0 120.0 0.0% 130.0 130.0 0.0% 140.0 N.A. N.A.
PBT 392.2 368.1 6.5% 462.1 432.5 6.8% 543.8 N.A. N.A.
Tax rate 28.0% 30.0% -2.0% pts 28.0% 30.0% -2.0% pts 28.0% N.A. N.A.
Core profit 262.4 242.7 8.1% 312.7 287.7 8.7% 371.5 N.A. N.A.
Shares outstanding (m) 1,489.8 1,487.3 0.2% 1,489.8 1,487.3 0.2% 1,489.8 N.A. N.A.
Core EPS (Scts) 17.61 16.32 7.9% 20.99 19.34 8.5% 24.94 N.A. N.A.

SATS Discounted Cash Flow Model

S\$m FY26F FY27F FY28F FY29F FY30F FY31F FY32F FY33F FY34F FY35F FY36F
EBIT 514.3 559.6 619.3 631.6 644.3 657.2 670.3 683.7 697.4 711.3 725.6
Taxes (109.8) (129.4) (152.3) (189.5) (193.3) (197.1) (201.1) (205.1) (209.2) (213.4) (217.7)
Depreciation and amortisation 583.9 616.7 651.6 664.6 677.9 691.5 705.3 719.4 733.8 748.5 763.5
Change in net working capital 64.6 12.9 23.5 24.0 24.5 25.0 25.5 26.0 26.5 27.0 27.6
Capex (250.0) (250.0) (225.0) (236.3) (248.1) (260.5) (273.5) (287.2) (301.5) (316.6) (332.4)
Free cash flow to firm 803.0 809.8 917.1 894.5 905.3 916.0 926.5 936.8 947.0 956.8 966.5
Present value of free cash flow 803.0 722.0 729.2 634.2 572.3 516.3 465.6 419.8 378.4 340.9 307.0

Key Assumptions

  • Risk-free rate: 4.0% [[4]]
  • Market risk premium: 8.0% [[4]]
  • Beta: 1.3 [[4]]
  • Cost of equity: 14.4% [[4]]
  • Cost of debt: 4.5% [[4]]
  • After-tax cost of debt: 3.2% [[4]]
  • Target debt/equity ratio: 20% [[4]]
  • WACC: 12.2% [[4]]
  • Terminal FCFF: 976.1 [[4]]
  • Terminal growth rate: 1.0% [[4]]
  • Terminal value: 8,754.7 [[4]]
  • PV of terminal value: 2,781.3 [[4]]
  • PV of FCFF: 5,888.8 [[4]]
  • Total PV of FCFF: 8,670.1 [[4]]
  • Less: net debt/cash: (3,312.9) [[4]]
  • Equity value: 5,357.1 [[4]]
  • No. of outstanding shares (m): 1,489.8 [[4]]
  • Equity value per share (S\$): 3.60 [[4]]

Peer Comparison

Company Ticker Recom. Price (lcl curr) TP (lcl curr) Market Cap (US\$ m) CY25F CY26F 3-year EPS CAGR (% ) CY25F CY26F CY25F CY26F CY25F CY26F CY25F CY26F CY25F CY26F
SATS Ltd SATS SP Add 2.98 3.60 3,444 17.5 14.9 23.3% 57.6% 46.5% 1.6 1.5 9.5% 10.5% 5.4 4.8 1.8% 2.1%
Airports of Thailand AOT TB Hold 34 35.00 14,950 38.6 32.3 N.A. -13.2% -12.4% 3.7 3.4 9.9% 10.9% 12.1 10.9 2.2% 2.6%
Average 38.6 32.3 N.A. -13.2% -12.4% 3.7 3.4 9.9% 10.9% 12.1 10.9 2.2% 2.6%

ESG Analysis

ESG Combined Score

  • SATS was rated a B- for its ESG combined score by LSEG in FY24 [[5]].
  • Environmental: C+ (weightage 29.11%) [[5]]
  • Social: C+ (weightage 42.72%) [[5]]
  • Governance: A- (weightage 28.17%) [[5]]

ESG Initiatives and Implications

  • SATS has maintained its combined ESG score of B- since FY3/21, with a slight improvement in its Environmental pillar score from C in FY22 to C+ in FY23 [[5]].
  • This improvement was due to lower CO2 emissions per revenue and lower hazardous waste produced (62.3 tonnes in FY23 compared to 135.0 tonnes in FY22) [[5]].
  • SATS has started disclosing upstream and downstream emissions from FY23, improving its scores due to better disclosures [[5]].
  • Energy-saving efforts could lead to margin expansion over time, although these potential cost savings are not factored into current forecasts [[5]].

ESG Highlights

  • SATS is ranked the second-highest among its peers in its ESG combined score, second for the Environmental and Social pillars, and first for the Governance pillar [[5]].
  • The social score of 48.97 in FY23, an improvement from 41.92 in FY22, is commendable, despite high employee turnover faced by the industry during the Covid-19 pandemic [[5]].
  • The group’s workforce score stood at C+ as of FY24, maintained from FY22 but a decline from B+ in FY21 due to higher employee turnover and lower employee satisfaction [[5]].
  • Employee training efforts are expected to improve workforce productivity and satisfaction moving forward [[5]].

Governance Pillar

  • SATS’s improved Governance pillar score of A- in FY24 was a standout among its peers, resulting from its shareholders’ rights, equal voting rights, and shareholder engagement policies [[5]].
  • SATS also improved its stance on shareholders’ vote on executive pay, with an improvement from C+ to B+ in its shareholders score following the appointment of a new auditor and improvement in its revenue [[5]].
  • The ramp-up in its shareholder aspect under the Governance pillar will instill greater shareholder confidence and satisfaction in the group [[5]].

Financial Ratios and Key Drivers

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Mar-24A Mar-25A Mar-26F Mar-27F Mar-28F
Revenue Growth 193% 13% 3% 5% 7%
Operating EBITDA Growth 511% 33% 6% 7% 8%
Operating EBITDA Margin 15.2% 17.8% 18.3% 18.6% 18.8%
Net Cash Per Share (S\$) -1.39 -1.24 -1.09 -0.95 -0.72
BVPS (S\$) 1.60 1.74 1.86 2.00 2.18
Gross Interest Cover 0.95 1.94 2.12 2.46 2.87
Effective Tax Rate 48.0% 27.5% 28.0% 28.0% 28.0%
Net Dividend Payout Ratio 39.6% 30.6% 31.2% 31.0% 28.1%
Accounts Receivables Days 57.55 72.22 75.35 78.14 77.45