Simons Trading Research

Author: simonsg   |   Latest post: Tue, 13 Dec 2022, 10:52 AM


SATS - FY22 Below Expectations; Cost Pressure Weighing on Near-Term Performance

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  • SATS’s 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 q-o-q, as SATS’s 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’s financial performance in the near term. We cut FY23/24 core net profit forecasts by 54%/15% respectively.

SATS' FY22 Results Below Expectations

  • SATS (SGX:S58)’s FY22 revenue of S$1,177m (+21.3% y-o-y) 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’s non-travel related businesses. Travel-related revenue rose 5.4% q-o-q 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% q-o-q 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’s operating losses widened q-o-q 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’s core net losses widened q-o-q 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.

Business Volume Recovery Is Ongoing…

  • We expect SATS’s 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’s key regional markets (Malaysia, India, etc). The strong Apr 22 operating statistics of Changi Airport were also encouraging – pax volume rose 69.3% m-o-m to 1.93m or 32.4% of the pre-pandemic level (Mar 22: 19.2%), aircraft movement rose 14.4% m-o-m to 15,100 or 45.2% of the pre-pandemic level (Mar 22: 39.5%).

...but Cost Pressure Would Weigh on SATS’ Near-term Performance

  • Business volume recovery aside, SATS is 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’s earnings.

SATS - Earnings Forecast Revision & Recommendation

  • Cut FY23/24 core net profit estimates by 54%/15% while leaving FY25 forecast intact. This reflects our updated failure to pass down cost pressures.

Source: UOB Kay Hian Research - 1 Jun 2022

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