• SATS turned in a net profit of S$0.8m in 4Q21 vs our expected S$11m net loss. FY21 core net loss of S$7m is narrower than our expected S$26m.
• Higher-than-expected non-aviation revenue, lower staff costs from government relief and share of MI helped the performance.
• We see buying opportunity on recent SATS share price dip as Singapore regressed to Phase 2. Border reopening is a catalyst. DCF target price for SATS unchanged at S$4.30.

First Reported Quarterly Profit Since COVID-19 Outbreak Began

• SATS (SGX:S58)’s 4QFY21 net profit of S$0.8m (vs. 4QFY20 net loss of S$6.3m) was a beat vs our net loss expectations of S$11m, supported by government reliefs of S$51m, as well as stronger non-aviation revenue. Excluding impairment on investments of S$12m incurred, 4QFY21 net profit would have been at S$13m.
• Aside from Singapore (S$29.7m, -30% y-o-y) all geographical regions recorded net losses for the quarter.
• In light of headwinds faced from the pandemic, SATS has not issued dividends in FY21.

Not a Sitting Duck; Topline Bolstered by Non-aviation Segment

• SATS's 4QFY20 revenue of S$279m (+11% q-o-q, -36% y-o-y) was 10% above our expectations thanks to stronger contributions from Japan’s revenue fell 35% q-o-q due to the resurgence of COVID-19 cases that resulted in scaled-back domestic flights. Cargo revenue stood at ~ 14% of group revenue and returned to pre-COVID levels in terms of volume and margins.

Associates Still in the Red, Affected by Credit Provisions

• While SATS’s cargo associates in Hong Kong, Mumbai and Ho Chi Minh were profitable in 4QFY21, contribution from associates came in at a S$7.3m loss (-127% q-o-q, -76% y-o-y). This was largely due to headwinds faced by its aviation catering and ground services associates and one-off credit provisions of ~S$12m. This brings FY21 share of losses from associates to S$48m (vs. S$12m profit in FY20), above our S$43m expectation.

Maintain ADD at Target Price of S$4.30; a Recovery Proxy, Cost Relief Helps

• We see buying opportunity for long-term investors given recent weakness of SATS share price amid the resurgence of COVID-19 cases in Singapore is likely to be pushed back to early-2022 (previously end-2021) but is still a catalyst.
• Risk: a new wave of the COVID-19 pandemic.

Source: CGS-CIMB Research - 27 May 2021