SATS share price remains shaky as analysts lower dividend forecasts

Singapore aviation ground handling services group SATS (SGX: S58) continues to see its share price trading well below pre-coronavirus levels.

On Wednesday 15 April 2020, the stock fell 3.2% to S$3.06 per share within the first 90 minutes of trading.

SATS’s share price sunk nearly 50% between Feb and March

Since late-January this year – when the coronavirus first broke out in China, SATS’s shares have plummeted as much as 49.10%, from above S$5.00 per share to around S$2.50 each by late-March.

With many countries globally banning or minimising air travel in a bid to prevent the importation of more coronavirus infections, travel and tourism companies and stocks have been among some of the hardest hit.

Singapore Airlines, the flagship carrier of the country, also saw share price drop to a 21-year low in March, as the pandemic crisis worsened globally, sending more countries into self-imposed month-long border control measures.

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SATS – a provider of passenger, baggage and ramp handling, aviation security, cargo and food catering services at over 40 airports across Asia Pacific and the Middle East – unsurprisingly saw air traffic and revenues impacted significantly once countries ramped up their Covid-19 measures.

Three separate fiscal stimulus plans amounting to nearly S$60 billion in aid rolled out by the Singapore government, with the latest announced just last week on 06 April, helped to cushion the share price slightly.

Analysts predict a net loss of S$101 million for SATS’s FY2021

In view of these factors, the prognosis from top equity analysts for the stock for the next two quarters remain on the gloomy side.

CIMB analysts, in a recent note, stated that they expect a net loss of S$101 million for the group’s current 2021 financial year, before returning to profitability on a net gain of S$119 million for FY2022. Even at that profit estimate for 2022, this would still represent a 48% drop from FY2019.

This is on top of the fact that a 15% to 30% reduction in staff costs per quarter starting from the fourth quarter of 2020, as well as an estimated S$51 million in aid per quarter as part of the Singapore government’s job support scheme grant have already been factored into calculations.

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According to CIMB’s estimates, the first quarter of FY2021 (April to June 2020) will be the worst reporting quarter for SATS, as it would be operating at just 10% of its normalcy before a return to 50% by the fourth quarter of 2021.

‘Our base case assumes SATS returns to profitability in 4QFY21F (Jan-Mar 21), at the earliest, given the magnitude of the global lockdown,’ they wrote, adding that the company’s share price took a year during the 2008 global financial crisis to normalise back to a 15x forward price-to-earnings (P/E) ratio.

SATS’s share price now trades at c.30x FY22F P/E, implying that a sharp recovery is in store if there are no further setbacks, they further noted.

Dividend cuts ‘inevitable’, with yields potentially at 2% for 2020

Taking into consideration the upcoming losses, the brokers have maintained their rating on the stock at ‘reduce’ alongside a much lower 12-month share price target of S$2.56 per share (down from S$4.07).

They added that dividend rate cuts are ‘inevitable’ with dividend yields possibly to be reduced to a much lower 2% for 2020 (versus 2019’s 6.17% yield), even though the company had on 25 March issued S$200 million worth of five-year bonds as part of a pre-emptive measure to cushion losses and cash burn.

The last time SATS’s dividend yields were under 3% was in 2003 when it came in at 2.27%.

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