What's the outlook for SATS following fourth quarter loss?
SATS’ share price is down as much as 6.5% this week, on the back of Q4 net losses and lower dividends for FY2019/2020.
SATS stocks down by 6.5% this week
Singapore aviation service provider SATS' share price is down by as much as 6.5% this week, following the company’s fourth quarter earnings report for the 2020 financial year.
Last Thursday 09 July 2020, the Singapore Exchange-listed company reported a net loss of S$6.3 million in Q4 FY2020, as compared to a net profit of S$49.9 million in the same period a year prior. This is below SATS’ initial earnings projection of S$15 million to S$19 million in net profit.
Following that, SATS stocks opened nearly 3% lower on Monday 13 July at S$2.81 a share. As at 16:00 SGT on Tuesday 14 July, share price has fallen further to S$2.72 per share.
Despite the price decline, IG’s market analysis show that ‘buys’ form 67% of all trades on the SATS counter so far this week. Additionally, 98% of IG client accounts with open positions in this market also expect the price to rise.
SATS’ net profit declined 112.6% in the fourth quarter
Last week, SATS reported that group revenue for the quarter ending 31 March 2020 decreased S$38.4 million, or 8.1% year-on-year, to S$433.1 million.
Group expenditure for the quarter dropped S$29.1 million, or 6.9%, to S$391.6 million, compared to the previous corresponding quarter.
Group operating profit dipped S$9.3 million, or 18.3%, to S$41.5 million, compared to the same quarter last year, primarily attributable to the sharp decline in the group’s aviation revenue.
Consequently, the group recorded a net loss of S$6.3 million in Q4, a year-on-year decline of S$56.2 million, or 112.6%. The underlying net profit of S$5.6 million was S$43.1 million or 88.5% lower year-on-year.
Across the full financial year, group net profit attributable to owners of the company declined S$80 million (32.2%) to S$168.4 million. The underlying net profit was S$180.3 million, a decrease of S$61.1 million (25.3%) year-on-year.
The group said that its performance for the quarter was impacted by the Covid-19 pandemic across the region, which led to a significant drop in global demand for air travel. This had in turn created substantial adverse impact on revenue and profitability, it added.
SATS caps full-year dividends at S$0.06
In light of the ‘significant uncertainties’ in the road ahead, the ground handling operator’s Board of Directors believe that it would be prudent not to pay a final dividend for FY2019/2020.
It said: ‘This will allow the company to preserve more jobs and capabilities to support our customers as aviation volumes resume, and to pursue opportunities outside of aviation.’
As such, the full-year total dividend sum tallied at S$0.06 per share. This is down from FY2018/2019’s final dividend amount of S$0.19.
Alex Hungate, President and Chief Executive Officer of SATS, remarked in the earnings release that the operating environment in the next financial year ‘will be challenging’ for the group’s aviation related businesses.
Analysts raise SATS share price targets
DBS equity researchers have maintained a ‘hold’ rating on the SATS stock and raised their share price estimates to S$2.83, up from S$2.64 per share previously.
They took this optimistic view as they found SATS’ Q4 earnings to be ‘non-event’, as the ‘full-blown impact of poor throughput at Changi was felt in 1Q21 (April to June 2020) due to regional lockdowns’.
They also increased their FY2021-FY2022 earnings estimates by 6% to 8%, in line with SATS management’s latest improved profit guidance for the first quarter of FY2021.
On the other hand, CIMB analysts have changed their rating on the stock to a ‘reduce’ on concerns regarding a resurgence of severe global lockdowns as Covid-19 cases begin to surge again.
However, they increased their SATS share price target to S$2.80 per share (from S$2.56), as they believe that SATS’ capacity will ‘inevitably improve as travel gradually recovers’. Nevertheless, they cautioned that at 30x FY21F price-to-earnings ratio, SATS’ stock valuation is ahead of its fundamentals.
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