FY22: Below Expectations; Cost Pressure Weighing On Near-term Performance
SATS’ FY22 revenue of S$1,177m and core net loss of S$8.5m were below our and
consensus expectations. Core net losses excluding government reliefs widened qoq, as
SATS’ revenue recovery failed to keep pace with its operating cost increase. We expect
cost pressure from labour and food ingredients to continue to weigh on SATS’ financial
performance in the near term. We cut FY23/24 core net profit forecasts by 54%/15%
respectively. Maintain BUY with a lower DCF-based target price of S$4.75.
RESULTS
• Results below expectations. SATS’ FY22 revenue of S$1,177m (+21.3% yoy) accounted
for 95% of our full-year forecast. 4QFY22 revenue of S$300m was an unexpected decline
from S$308m in 3FYQ22, due to lower contribution from SATS’ non-travel related
businesses. Travel-related revenue rose 5.4% qoq to S$183m in 4QFY22 (3QFY22:
S$174m), as the aviation sector continues to recover; however, the magnitude of
improvement was lower than expected and not able to fully offset the decline in non-travel
revenue. Cost-wise, total operating cost rose 6% qoq to S$334m in 4QFY22 (3QFY22:
S$317m), due mainly to higher staff costs from increasing labour headcount and reduction in
government reliefs. As a result, SATS’ operating losses widened qoq to S$37.1m in
4QFY22, compared to S$9.5m loss in 3QFY22.
• Headline net profit helped by one-off accounting gain. SATS reported a net profit of
S$2.1m (FY22: S$20.4m) for 4QFY22, helped by a sizeable one-off accounting gain of
S$28.9m related to the acquisition of an additional 16.4% stake in Asia Airfreight Terminal
(AAT). Excluding the one-off accounting gain, SATS would have registered a core net loss of
S$26.8m in 4QFY22 (core net loss of S$8.5m for FY22). SATS continued to receive
government reliefs in 4QFY22. Excluding the positive impact of government reliefs, SATS’
core net losses widened qoq to S$42.5m in 4QFY22 from S$33m in 3QFY22.
• Balance sheet remained healthy. SATS maintained a net cash of position of S$275m as at
end-FY22, equivalent to 15% of its net asset base or 5.6% of its market cap.
• No dividend declared. This is as expected, as SATS was still in a loss-making position in
FY22 without the government support.
STOCK IMPACT
• Business volume recovery is ongoing… We expect SATS’ aviation business volume to
continue to recover in FY23, fuelled by the opening of borders at its home base Singapore
as well as the recent relaxation of travel restrictions in a number of SATS’ key regional
markets (Malaysia, India, etc). The strong Apr 22 operating statistics of Changi Airport were
also encouraging – pax volume rose 69.3% mom to 1.93m or 32.4% of the pre-pandemic
level (Mar 22: 19.2%), aircraft movement rose 14.4% mom to 15,100 or 45.2% of the prepandemic level (Mar 22: 39.5%).
• …but cost pressure would weigh on SATS’ near-term performance. Business volume
recovery aside, SATS is facing keener cost pressure in the near term, driven by higher
labour costs (from headcount increase, wage inflation, training costs for new hires) as well
as rising food ingredient prices. The proactive ramp-up of workforce ahead of business
recovery is expected to create some mismatch between revenue and cost. Management
guided that these factors would continue to weigh on SATS’ financial performance in the
next two quarters. As such, we expect SATS’ earnings recovery to be more backend-loaded
in 2HFY23.
• Working with airline customers to pass through some raw material cost pressure. We
understand that SATS has been talking with some of its key airline customers to redesign
the food menu. According to management, the menu redesign will allow SATS to pass down
part of the raw material cost pressure to its end-customers (as pricing will be reviewed
together with the menu redesign). While this will help relieve further margin pressure for
SATS, it is unlikely to give an immediate boost to SATS’ earnings.
EARNINGS REVISION
• Cut FY23/24 core net profit estimates by 54%/15% while leaving FY25 forecast intact.
This reflects our updated expectation of keener cost pressure in the near term and hence a
more backend-loaded earnings recovery. The increase in FY23-25 revenue projection is due
to the financial accounting consolidation of AAT (now a 65.4% subsidiary vs previously a
49% associate).
VALUATION/RECOMMENDATION
• Maintain BUY with a lower DCF-based target price of S$4.75 (previously S$4.85). Our
updated target price of S$4.75 implies a FY25 PE of 19.8x, close to SATS’ historical
average forward PE in the normalised years (FY14-19). SATS’ current trading price of
S$4.38 implies a FY25 PE of 18.3x, 0.5SD below its historical average.
SHARE PRICE CATALYST
• Catalysts for SATS include faster-than-expected earnings recovery and relaxation of travel
restrictions in key Northeast Asian markets including China and Japan.
RISKS
• Key risks for SATS include any event that disrupts the aviation sector recovery as well as
failure to pass down cost pressures.