SATS S58 presents a more attractive risk-reward profile after its recent share price decline, says UOB Kay Hian (UOBKH) analyst Roy Chen, after the air cargo company saw a 4% decline in its counter over the past week.
Chen maintained his “buy” call on SATS with an unchanged target price (for ex-rights shares) of $3.02 based on a 9.7x FY2025 EV/ebitda. The target price represents an upside of 24.7% against its traded price of $2.42 when it closed on March 10.
This comes after the Asean Gems Conference held on March 7-8, 2023, where SATS’s management shared the company’s outlook and clarified investors’ queries about the Worldwide Flight Services (WFS) deal.
The WFS deal was announced two weeks ago, where shareholders will be allotted rights to subscribe for 323 rights shares for every 1,000 existing shares held as at March 2. The rights shares were offered at $2.20 each, at a discount of 16% to the TERP, or theoretical ex-rights price.
“Management noted that SATS’s share price is undervalued with the overhang of rights issue,” says Chen.
In his note on March 13, Chen noted that the activities of some investors selling off rights during this period have depressed SATS shares’ trading price. However, this pressure would likely be eased after the rights trading ends on March 15.
See also: Sats to launch rights issue priced at $2.20 to fund acquisition of WFS
He notes that the upcoming global leader in air cargo has a stronger business profile than its peers, and is currently trading at 8.5x FY2025 (normalised year) adjusted ebitda by their estimate, based on its closing price of $2.42, 2.4 standard deviations below its historical mean EV/ebitda of 12.8x in 2014-2019.
Accounting for uncertainties and risks related to the WFS deal, Chen says the ex-rights target price of $3.02 is based on a relatively conservative 9.7x EV/ebitda multiple over FY2025 adjusted ebitda, pegged to SATS’s reported acquisition multiple for WFS.
Chen also notes signs of improvement in air cargo (global trade) in the second quarter of this year, quoting that the International Monetary Fund (IMF) raised its 2023 global GDP growth forecast to 2.9%, up from 2.7% in October 2022.
As at 2.36pm, shares in SATS are trading 3 cents lower, or 1.25% down, at $2.37.
