CGS International
August 22, 2025
SATS Ltd: Poised for Accelerated Growth as Gateway Services Outpace Global Cargo Industry
Overview: SATS Ltd Continues to Outperform with Robust Gateway Services and Strategic Food Solutions Optimizations
SATS Ltd, a leading player in gateway services and food solutions, has once again demonstrated its strength with a solid set of first-quarter results for FY3/26. The company reported a net profit after tax and minority interests (PATMI) of S$70.9 million, aligning with expectations and forming over 27% of both CGS International’s and Bloomberg’s consensus FY26 forecasts. The company’s ability to outpace global air cargo growth for seven consecutive quarters and drive margin improvements through strategic consolidations positions it as a compelling investment opportunity.
Key Financial Highlights: Strong Performance Across Core Segments
| Metric |
1QFY26 |
4QFY25 |
1QFY25 |
YoY Change |
QoQ Change |
| Revenue (S\$m) |
1,506.3 |
1,476.7 |
1,370.4 |
+9.9% |
+2.0% |
| PATMI (S\$m) |
70.9 |
38.7 |
65.0 |
+9.1% |
+83.2% |
| EBITDA (S\$m) |
273.8 |
257.5 |
249.1 |
+9.9% |
+6.3% |
| EBITDA Margin (%) |
18.2 |
17.4 |
18.2 |
0.0 pts |
+0.7 pts |
Gateway Services: The Engine of Growth
- Revenue Surge: Gateway services revenue climbed 11.2% year-on-year (yoy) to S\$1.18 billion, outpacing the global air cargo industry for the seventh consecutive quarter.
- Cargo Handling: Revenue rose by 12.2% yoy, driven by a 10.4% increase in cargo volume handled.
- Ground Handling: Revenue up 9.2% yoy, supported by a 2.6% increase in flights handled.
- Margin Expansion: EBIT margin for gateway services expanded 1 percentage point to 8.7%, demonstrating operational leverage despite management’s decision to maintain cargo headcount in the US during volatile periods.
Management emphasized that profitability in this segment was not fully optimized in the quarter due to the strategic choice to retain headcount in the US after the announcement of Liberation Day tariffs. This decision allowed SATS to quickly scale operations as cargo demand rebounded.
Food Solutions: Margin Gains Amid Consolidation
- Revenue Growth: Food solutions revenue rose 5.6% yoy to S\$328.3 million in 1QFY26.
- Aviation Meals: Up 5.6% yoy, benefiting from increased flights handled.
- Non-Aviation Meals: Down 10.6% yoy, reflecting the consolidation of Kunshan central kitchen into Tianjin, leading to some customer loss due to location change.
- EBIT Margin: Improved by 0.8 percentage points to 8.7% as a result of better operating leverage following the central kitchen consolidation.
- New Contracts: Secured a contract with Starbucks China, expected to enhance Tianjin kitchen utilization and boost profitability from 2QFY26 onward.
Upward Revisions and Target Price Increase
On the back of robust revenue momentum and operational improvements, CGS International has raised its DCF-based target price for SATS Ltd to S$3.83 (from S$3.60), with a 12.2% WACC. FY26-28 EPS estimates have been nudged up by 1.1–1.4% due to stronger top-line growth, especially in gateway services.
| Year (Mar) |
2024A |
2025A |
2026F |
2027F |
2028F |
| Revenue (S\$m) |
5,150 |
5,821 |
6,114 |
6,412 |
6,886 |
| Operating EBITDA (S\$m) |
781 |
1,036 |
1,103 |
1,181 |
1,276 |
| Net Profit (S\$m) |
56.4 |
243.8 |
265.9 |
316.4 |
375.5 |
| Core EPS (S\$) |
0.05 |
0.16 |
0.18 |
0.21 |
0.25 |
| Dividend Yield (%) |
0.46 |
1.53 |
1.69 |
1.99 |
2.15 |
Valuation, Shareholder Structure, and Price Performance
SATS Ltd is currently trading at S$3.26, with a target price of S$3.83, representing a 17.3% upside. Temasek Holdings remains the largest shareholder at 40.4%. Notably, the company has delivered a 9% 3-month absolute return, though the 12-month performance reflects sectoral challenges.
Key Valuation Metrics
- Market Cap: US\$3.78 billion (S\$4.87 billion)
- FD Core P/E (FY26F): 18.44x
- EV/EBITDA (FY26F): 5.60x
- P/BV (FY26F): 1.75x
- ROE (FY26F): 9.9%
Peer Comparison: SATS vs Airports of Thailand
| Company |
Ticker |
Rec. |
Price (lcl curr) |
Target Price |
Market Cap (US\$m) |
FY26F P/E |
FY26F Div Yield (%) |
FY26F ROE (%) |
| SATS Ltd |
SATS SP |
Add |
3.26 |
3.83 |
3,782 |
16.1x |
1.9% |
10.6% |
| Airports of Thailand |
AOT TB |
Reduce |
37.75 |
25.00 |
16,530 |
29.8x |
2.0% |
13.3% |
SATS Ltd stands out with a lower P/E and strong expected earnings growth, while Airports of Thailand faces a “Reduce” rating due to less favorable outlook.
ESG Performance: Commitment and Challenges
SATS maintained a combined ESG rating of C+ (LSEG) in FY25, with individual scores of C for Environmental, C for Social, and B for Governance. SATS ranks second among peers on combined ESG, environmental, and social scores and leads on governance. The slight drop in ESG rating is attributed to the integration of Worldwide Flight Services (WFS) post-acquisition.
- Environmental Initiatives: Focus on smart infrastructure, renewable energy, waste reduction, and sustainable packaging.
- Social Efforts: Workforce training and development, with the social score improving from FY22 despite industry-wide turnover challenges.
- Governance: Shareholder rights and engagement, executive pay transparency, and new auditor appointment have strengthened governance further.
Balance Sheet and Cash Flow: Resilience and Efficiency
| Metric |
Mar-24A |
Mar-25A |
Mar-26F |
Mar-27F |
Mar-28F |
| Total Cash & Equivalents (S\$m) |
659 |
694 |
710 |
733 |
867 |
| Total Debt (S\$m) |
2,722 |
2,538 |
2,338 |
2,138 |
1,938 |
| Shareholders’ Equity (S\$m) |
2,375 |
2,587 |
2,771 |
2,990 |
3,262 |
| Operating EBITDA Margin (%) |
15.2 |
17.8 |
18.0 |
18.4 |
18.5 |
Key financial ratios indicate improving leverage, rising margins, and disciplined capital management.
Risks and Catalysts: What Investors Should Watch
Potential Catalysts:
- Further contract wins, especially in food solutions and cargo operations, could drive revenue momentum and margin expansion.
- Successful integration of new contracts (e.g., Starbucks China) and better utilization of facilities.
Risks:
- Margin compression if cargo volumes soften or if there is an aviation industry slowdown due to macroeconomic headwinds.
- Operational leverage could be adversely affected by unexpected disruptions.
Conclusion: SATS Ltd Well-Positioned for Sustainable Growth
SATS Ltd’s first-quarter FY26 performance cements its status as an industry leader in gateway services and food solutions. The company’s ability to outpace global competitors, optimize operations, and embrace ESG principles underscores its investment appeal. With a raised target price, improving margins, and a robust contract pipeline, SATS Ltd stands out as a high-conviction “Add” for investors seeking growth and resilience in the aviation services sector.
