Analysts raise Sats target price after strong earnings as aviation recovery takes off

Source: The Straits Times
Author: Ven Sreenivasan

SINGAPORE - After two difficult years, Sats is back.

At least that seems to be the growing consensus in the market after the aviation ground service specialist on May 29 posted strong fiscal 2024 earnings and announced the resumption of dividend payouts.

Net profit for the year to March came to $56.4 million, a turnaround from a loss of $26.5 million a year earlier. Revenue almost trebled to $5.15 billion from $1.76 billion.

Sats also declared a final dividend of 1.5 cents per share, compared with no dividend the previous year.

The good results come after a difficult year for the company following its purchase of bigger European rival Worldwide Flight Services (WFS) for $1.8 billion, which was completed in April 2023.

The deal saw Sats take on huge debt and undertake a dilutive share placement to fund the purchase - actions which did not please the market. As a result, Sats shares were pummelled.

But things look different now.

Sats is trading at $2.89 as of 2pm on June 4, 1.8 per cent higher on the day, and 20.4 per cent up from its low of $2.40 last year.

At least four leading brokerages have put up "buy" and "add" calls on the stock, with analysts saying the much-enlarged Sats-WFS global entity stands to scoop up market share and ride the rapid recovery in global aviation.

In a May 31 report, analysts Tay Wee Kuang Lim and Siew Khee set a $3.44 cents target for Sats, citing "surprising quarter-on-quarter growth in net profit of 4.1 per cent to $32.7 million" during the final quarter of FY2024.

They noted that Sats' core business and WFS' were operationally profitable, while contributions from associates and joint ventures (JVs) were stronger.

"We reiterate 'add' as we are confident of Sats improving profitability for FY2025," they wrote.

Similarly John Cheong of UOB Kay Hian noted that Sats' FY2024 earnings beat his house expectations, with the resumption of dividend payments seen as symbolic of the company's turnaround.

"The beat adds to our case that Sats' earnings recovery will gain momentum in FY2025," he wrote.

Mr Cheong has a "buy" call on the stock with a price target of $3.22.

Meanwhile OCBC Investment Research raised its fair value estimate on Sats to $3.31, from $3.09 while noting that the group's FY2024 bottom line was a "strong beat".