Analysts positive on Sats despite its first-quarter loss
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Sats is expected to show better operating results as the benefits of the integration of WFS flow through.
ST PHOTO: JOYCE FANG
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SINGAPORE - Despite posting first-quarter losses, ground handler Sats drew positive calls from analysts, who cited the company’s upward business momentum, strong cash flow, cash-generating ability and expected smooth integration of its newly acquired air cargo logistics business Worldwide Flight Services (WFS).
Investment houses CGS-CIMB, UOB Kay Hian and DBS Research had 12-month price targets of $2.86, $2.99 and $3.20, respectively, on the stock of the airport and food services operator. Other investment houses are expected to release their analyses this week.
In its first set of financial statements following the successful acquisition of WFS in April, Sats reported a loss of $29.9 million for the first quarter ended June 30. Contributing to the loss were one-off costs related to the integration of the European company,
Excluding the integration-related one-off expenses, the underlying loss after tax and minority interest narrowed to $17.4 million, compared with a loss of $19.5 million a year earlier, which included government reliefs of $9.4 million.
DBS noted that the group bottom line was “skewed due to accounting nuances”, such as the front-loading of interest expense and the added amortisation of intangible assets at WFS.
On a standalone basis without WFS, Sats’ core profit after tax and minority interest ex-reliefs strengthened to $15 million during the quarter, which is up 265 per cent quarter on quarter and marks its second profitable quarter without government subsidies, the DBS report said.
Noting that Sats’ airline customers were still ramping up operations and adding capacity, it said that the company’s overall business momentum continues to be positive.
CGS-CIMB, meanwhile, noted that contributions from joint ventures and associates improved 21 per cent quarter on quarter to $21 million on the back of a general recovery in gateway and turnaround in food solutions.
“On a standalone basis, Sats recorded a profit of $15 million in the first quarter (of fiscal year) 2024, a $9.5 million improvement quarter on quarter,” wrote analyst Tay Wee Kuang.
The investment house also noted strong operating cash flow of $54 million, earnings before interest, tax, depreciation and amortisation (Ebitda) of $158 million and Ebitda margin of 13.2 per cent.
UOB Kay Hian’s Roy Chen wrote that excluding accounting treatment difference and one-off integration expenses, Sats’ first-quarter core net loss of $17.4 million was in line with the house’s expectations.
“Core earnings of Sats’ original businesses achieved a turnaround in 1QFY24 while WFS’ performance was still affected by the subdued near-term global trade outlook,” the UOB Kay Hian report said. “Management is committed to accelerating the integration of WFS and driving synergy realisation.”
Analysts agree that the stronger cash flow outlook will help Sats pare down its debt from the WFS acquisition by about $300 million a year.
Sats financed its $1.8 billion acquisition of WFS via a rights issue of almost $800 million,
Meanwhile, technical analysts – who study the chart movement of the stock – see good support for the stock at around the $2.53-$2.59 band, with near-term upside at $2.80. They noted that the stock has been in a consolidative range for the past 10 months.
Shares of Sats closed on Wednesday down 3.05 per cent to $2.54.
