SINGAPORE (July 14): Analysts are turning negative on airline gateway services and food solutions provider SATS following the release of its 4Q20 results.
See: SATS reports net loss of $6.3 mil in 4Q20 as Covid-19 halts air travel
On July 9, SATS reported a net loss of $6.3 million for the quarter and a 32.2% y-o-y decline in its total earnings for FY20.
The results missed even SATS’s expectations for a 60-70% reduction in net profit in 4Q20 to $15-$19 million.
See also: SATS braces for 60-70% plunge in 4Q profits as Covid-19 storm stalls global air travel
There no final dividend reported for the quarter.
On that, analysts from DBS Group Research and OCBC Investment Research have recommended investors to “hold” on to the stock, while analysts from PhillipCapital and CGS-CIMB feel it’s time to “sell” or “reduce” their positions.
See also: SATS profit warning prompts DBS to lower earnings forecasts, TP
PhillipCapital analyst Paul Chew has downgraded his recommendation to “sell” from “neutral”.
“The path to recovery for aviation will be long. Profitability will be elusive, and the focus will be on the liquidity of the company,” he says in a Monday report.
“Liquidity will more critical than any elusive profitability this year. We expect a severe contraction in aviation revenues, which accounts for 76% of 4Q20 revenues… Absence of dividends and net losses to persist, a more conservative benchmark to valuations will be the price to book ratio,” Chew adds.
In her report dated July 10, CGS-CIMB analyst Lim Siew Khee feels SATS’s valuations are ahead of its fundamentals at 30x FY21F price-to-earnings (P/E).
While she says SATS’s capacity will inevitably improve on the gradual recovery of the travel sector, she thinks it is “too early” to see an uplift in international travel patterns as yet.
Lim has projected losses for SATS in the next three quarters, due to a potential extension or resurgence of lockdowns.
She has increased SATS’s earnings per share (EPS) for FY21F by 19% on higher non-aviation revenue, and cut EPS for FY22F by 7% on lower associate contributions.
DBS Group Research analysts Alfie Yeo and Andy Sim are maintaining their neutral view on SATS as they await the recovery of mass travelling across borders.
“While core 4Q20 earnings were in line, the results are a non-event in our view. 1QFY21 earnings should be sequentially worse as regional lockdown and travel restrictions were in full swing. Even as travel situation gradually improves, the question is when mass travel will return as with the reopening of Terminals 2 and 4,” they note in a Monday report.
Yeo and Sim have cut their dividend forecast for FY21F to 0 cents, with a small distribution per share (DPS) of 3 cents in FY22F.
They have also raised FY21-22F earnings by 6-8% on better cost management and consolidation impact of Country Foods and Nanjing Weizhou Airline Food Crop.
OCBC Investment Research analyst Chu Peng says she expects FY21 to be “likely better” than 4Q20 with the reopening of borders, and expects a “full recovery” in 2023.
“[We] believe that SATS may have to rely on its non-aviation segment (17% of FY20 revenue) such as institutional catering and commercial catering to support its revenue growth in the near to mid-term,” she says.
In view of the uncertainty ahead due to Covid-19, Chu has reduced her DPS forecasts for FY21/22by 89%/67% to 2 and 7 cents respectively.
DBS Group Research, OCBC Investment Research, PhillipCapital, and CGS-CIMB have recommended target prices of $2.83, $2.76, $1.95, and $2.80, respectively.
As at 9.20am, shares in SATS were changing hands 3 cents lower, or 1.1% down, at $2.75.
