SATS’s 2QFY21 revenue fell 53.5% YoY to S$231.1m due to weak aviation revenue, but partially offset by higher non-aviation revenue. S$31.6m of impairment charges were made on investment in an associate and long-term investment due to the pandemic. As such, 2QFY21 PATMI remained in losses at S$33.2m as compared to a profit of S$60.7m in 2QFY20.

The losses, however, were narrowed on a QoQ basis. No interim dividends were declared as compared to 6 S cents in the same quarter last year on cash conservation.

We understand from management that SATS and several of its subsidiaries and associates are CEIV Pharma certified to handle the Pfizer vaccines which requires temperature handling of minus 75-80 degrees Celsius. Management added that SATS handled shipments which required similar temperature before and are confident that they could use their network to handle the shipments of vaccines next year. We believe this would provide significant opportunities for SATS.

After adjustments, our fair value estimate increases from S$2.93 to S$4.31 on better outlook and near-term catalyst from potential vaccine shipments. Upgrade from Hold to BUY.

Source: OCBC Research - 16 Nov 2020