Sats may see light at end of tunnel on cargo, food boost

• Sats (SGX: S58) share price increases to S$4.12 a share, up 0.7%
• Cargo continued to be a bright spot, while associates also supported its results
• Analysts mostly recommend ‘buy’ or ‘hold’ on the stock
• Trade Sats, long or short, with an IG account

What do analysts like about Sats?

Sats’ net loss narrowed to S$2.8 million for its third quarter ended 31 December 2020, from a S$33.2 million loss in the previous quarter, thanks to robust cargo performance and government relief.

The food supplier and gateway services provider’s revenue sank 54% on the year to S$251 million for the October-December period.

These results came in within OCBC analysts’ expectations, with cargo remaining the bright spot amid the plunge in the number of passengers and flights handled.

OCBC believes Sats will benefit from vaccine shipment as a certified pharma handler and a gradual pick-up in travel demand.

In the near to medium term, the company may need to rely on its non-aviation business and cargo services to support its revenue growth, given that the Covid-19 vaccine rollout and the reopening of international borders will take time, OCBC added.

OCBC rated Sats a ‘buy’ and increased its fair value to S$4.95, from S$4.31.

Meanwhile, Nomura analysts recommended ‘buy’ with a target price of S$5, but cautioned that the removal of the Singapore government’s Jobs Support Scheme will hurt the firm.

Out of 10 research teams, six have a ‘buy’ call on Sats shares, three rated it ‘hold’, while one recommended ‘sell’, according to Bloomberg data.

The stock gained 0.7% to finish Thursday (11 February 2021) at S$4.12, on 1.7 million shares traded.

Sats associates provide boost

CIMB, which reiterated its ‘add’ recommendation and S$4.30 target price, said that the contribution from Sats’ associates was ‘a positive surprise’, as they posted a profit of S$3.5 million versus the analysts’ expectations of a S$10 million loss.

The associates’ strength came from a boost in the cargo segment and aggressive cost control, CIMB wrote. Its analysts foresee the group’s earnings to recover in the quarter ending March 2021.

According to Sats CEO Alex Hungate, the cargo associates in Hong Kong, Vietnam and Taiwan managed to reverse their losses into profits in the December quarter. On a quarter-on-quarter basis, cargo revenue improved 22%.

Focus on food business

Beyond aviation, Sats plans to grow its revenues from food service, retail chains, institutions, fast casual restaurants and other non-travel segments such as security services, according to Hungate.

Its food business has improved amid the coronavirus outbreak, as consumers turned to food delivery and ready-to-eat meals.

CIMB said Sats’ net cash of S$122 million will back its mergers and acquisitions to ride the central-kitchen trend in China and India, as well as in air cargo, especially in the handling of perishable products and e-commerce.

Meanwhile, OCBC pointed out that execution hiccups, such as in food safety, present an investment risk.

How to trade Sats with IG

Are you feeling bullish or bearish on Sats' stock price?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <Sats> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade