CGS International Securities
May 29, 2025
SATS Ltd: Leveraging Market Expansion and Operational Strength for Sustainable Growth
Overview: SATS Ltd Poised for Growth Amid Global Trade Uncertainties
SATS Ltd, a key player in the global airport services and food solutions sectors, remains in a strong position to deliver consistent earnings growth and operational resilience. Amid global trade uncertainties, the company’s strategy—focused on market share gains, network expansion, and cost efficiencies—sets the stage for robust performance over the coming years. CGS International Securities maintains an “Add” rating with a target price of S\$3.60, indicating a potential upside of 16.7% from the current price of S\$3.08 as of the report date.
Key Investment Highlights
- Expanded Cargo Network: The acquisition of Worldwide Flight Services (WFS) has broadened SATS’s global reach, enabling new contract wins and greater cross-selling of value-added services to both new and existing customers.
- Strategic Investments: The company is investing S\$250 million in Singapore’s Changi Airport over the next five years to support growth and expansion, including the development of Terminal 5.
- Operational Leverage: FY3/25 revenue growth of 13% year-on-year nearly doubled EBIT (+94.8%) and tripled core net profit (+211.5%), showcasing strong operating leverage. Margins are expected to improve further as synergies from the WFS integration are realized.
- Resilient Business Model: SATS’s diversified service offering and focus on both gateway services and food solutions provide resilience against sector-specific downturns.
Market Share Expansion and Acquisition Strategy
SATS’s management continues to pursue market share gains in the global air cargo industry. The WFS acquisition at the end of FY3/23 has created significant cross-selling opportunities and an expanded network for further contract wins. The company is also open to further bolt-on acquisitions to increase capacity and add new stations, enhancing its ability to serve larger workloads and new markets.
Supporting Growth with Increased Headcount and Investment
- Headcount Growth: Employee numbers increased 1.9% quarter-on-quarter from 54,100 in 3QFY25 to 55,100 in 4QFY25. This growth supports higher ground-handling volumes, particularly in Brazil and Singapore.
- Changi Terminal 5: Strategic investments are being phased to support key customers, including Singapore Airlines and Changi Airport Group, ensuring SATS is well-positioned for increased passenger and cargo flows as the airport expands.
Financial Performance and Outlook
| 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% |
| Dividend (S\$) |
0.015 |
0.050 |
0.055 |
0.065 |
0.070 |
| Dividend Yield (%) |
0.49 |
1.62 |
1.79 |
2.11 |
2.27 |
- EBIT Margin Expansion: FY3/25 EBIT margin increased to 8.2% (up 3.5 percentage points YoY), but still below pre-pandemic levels of 11.7–13.5%. Further improvements are anticipated with continued integration of WFS and economies of scale in cargo handling.
- Balance Sheet Strength: Net gearing is projected to improve from 80.6% (Mar-24A) to 30.9% (Mar-28F), supported by robust free cash flow generation and disciplined capital expenditure.
- Return Metrics: ROE is set to rise from 3.3% (Mar-24A) to 11.9% (Mar-28F). Operating EBITDA margins are expected to expand from 15.2% to 18.8% over the same period.
Peers Comparison: SATS Ltd vs. Airports of Thailand
| Company |
Ticker |
Reco. |
Price (LC) |
TP (LC) |
Market Cap (US\$ m) |
CY25F FD Core P/E (x) |
CY26F FD Core P/E (x) |
3Y EPS CAGR (%) |
Div. Yield CY25F (%) |
Div. Yield CY26F (%) |
ROE CY25F (%) |
ROE CY26F (%) |
EV/EBITDA CY25F (x) |
EV/EBITDA CY26F (x) |
| SATS Ltd |
SATS SP |
Add |
3.08 |
3.60 |
3,550 |
18.1 |
15.4 |
23.2 |
1.7 |
2.0 |
9.5 |
10.5 |
5.5 |
4.9 |
| Airports of Thailand |
AOT TB |
Hold |
33.75 |
35.00 |
14,758 |
38.3 |
32.1 |
N.A. |
2.2 |
2.7 |
9.9 |
10.9 |
12.0 |
10.8 |
- Valuation: SATS is trading at a forward P/E of 18.1x for CY25F compared to Airports of Thailand’s 38.3x, with a stronger 3-year EPS CAGR projection of 23.2% for SATS.
- Dividend Yield: SATS offers a competitive dividend yield, forecast to rise from 1.7% to 2.0% over the next two years.
- Return on Equity: ROE for SATS is expected to increase from 9.5% to 10.5% (CY25F–CY26F), closely tracking Airports of Thailand’s metrics.
Discounted Cash Flow Valuation
- WACC: 12.2%
- Terminal Growth: 1.0%
- Cost of Equity: 14.4%
- Beta: 1.3
- Cost of Debt (after-tax): 3.2%
- Equity Value Per Share: S\$3.60 (based on 1,489.8 million shares outstanding)
ESG Performance: Sustainability and Governance in Focus
- LSEG ESG Combined Score: B- (FY24)
- Environmental Pillar: C+ (improved from C in FY22 due to lower CO2 emissions and hazardous waste output)
- Social Pillar: C+ (score of 48.97 in FY23, up from 41.92 in FY22, but down from B+ in FY21 due to pandemic-related turnover)
- Governance Pillar: A- (improved with enhanced shareholder rights, engagement, and voting on executive pay)
SATS continues to invest in sustainability initiatives, including renewable energy, electric vehicles, sustainable packaging, and employee skill development. Improved disclosures and environmental performance are expected to contribute to future margin expansion, though these benefits are not yet included in financial forecasts.
By the Numbers: Key Financial and Operational Metrics
- Revenue Growth: 13% YoY in FY3/25, with a projected CAGR of c.15% over FY25–FY28F.
- Operating EBITDA Margin: 17.8% in FY3/25, forecast to reach 18.8% by FY3/28.
- Net Gearing: Improving from 80.6% in Mar-24A to 30.9% in Mar-28F.
- ROE: Rising from 3.3% (Mar-24A) to 11.9% (Mar-28F).
- Dividend Payout Ratio: Expected to decrease from 39.6% (Mar-24A) to 28.1% (Mar-28F) reflecting stronger retained earnings for growth.
Key Risks and Catalysts
- Upside Catalysts: Expansion of the cargo network, new contract wins, and increased utilization of central kitchens in China and India.
- Downside Risks: Margin pressure from weaker operating leverage, potential softening of cargo volumes, and a global aviation slowdown due to macroeconomic factors.
Shareholder Structure and Major Holders
- Temasek Holdings: 40.4% ownership
- Free Float: 59.5%
- Market Capitalization: S\$4,577 million (US\$3,550 million)
- Average Daily Turnover: S\$14.73 million (US\$11.14 million)
- Shares Outstanding: 1,487 million
Stock Recommendation and Outlook
- Current Rating: Add (no change)
- Target Price: S\$3.60
- Current Price: S\$3.08
- Potential Upside: 16.7%
- Consensus Ratings: Buy 10, Hold 0, Sell 0
- Recent Price Performance: 1M: 9.6%, 3M: 1.3%, 12M: 16.7% (absolute)
Conclusion: SATS Ltd Well-Positioned for Sustainable Growth
SATS Ltd’s strategic focus on expanding its global cargo network, improving operational leverage, and enhancing sustainability initiatives supports robust earnings and margin outlooks. The company’s disciplined investment in infrastructure, strong balance sheet, and commitment to ESG principles provide a solid foundation for continued growth and resilience, making SATS an attractive proposition for investors seeking exposure to the global aviation and food solutions sector. With a 3-year EPS CAGR forecast of 15% and further margin expansion ahead, SATS remains a high-conviction pick among Singapore-listed airport service providers.
