As the worst appears to be over for regional air travel, DBS Group Research has selected in-flight caterer SATS as one of its top picks.
The brokerage says it is “increasingly optimistic” that commercialisation of at least two Covid-19 vaccines in 2021 should help air travel recover to pre-Covid-19 levels at an earlier date compared to the International Air Transport Association’s forecast range.
See also: Singapore to get first batch of Covid-19 vaccines in early 2021
Moreover, passenger throughputs have bottomed and are recovering albeit at a gradual pace, it says.
This comes as countries in the region have inked international travel arrangements to facilitate necessary travel along with a pick-up in domestic travel demand.
For more stories about where the money flows, click here for our Capital section
This is despite the postponement of the air travel bubble between Singapore and Hong Kong that was initially scheduled to begin on Nov 22.
“We see SATS as a candidate for vaccine recovery play,” analysts Alfie Yeo, Siti Ruzanna Mohd Faruk, Nantika Wiangphoem and Paul Yong write in a note dated Nov 20.
According to DBS, the stock is currently trading at 21 times its FY23 earnings forecast.
The brokerage expects the stock to gradually re-rate back to pre-Covid-19 levels.
“We advocate accumulating and staying vested ahead of the recovery even though near-term valuations look high,” the analysts say.
DBS has a “buy” rating for the stock with a target price of $4.50.
As at 11.56 am, SATS was down 16 cents or 3.7% at $4.22 with 6.5 million shares changed hands.
