Sats may see light at end of tunnel on cargo, food boost
Sats’ shares advanced after it narrowed its losses on the back of a strong cargo showing and associates’ profits.
- 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:
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.