ANALYSTS were mixed on Sats after the company released its full-year results on Monday (May 29), where it announced a net loss of S$26.5 million for FY2023. 

 

CGS-CIMB downgraded its call on Sats to &ldquo hold&rdquo from &ldquo add&rdquo and lowered its target price to S$2.60 from S$3.10, while UOB Kay Hian (UOBKH) maintained its &ldquo buy&rdquo call with an unchanged target of S$3.02. 

 

Both research houses expect Sats to benefit from a general recovery of the aviation industry, but also see near term headwinds in the form of lower cargo revenue, a continued rise in staffing costs, and the early redemption of World Flight Services (WFS) bonds. 

 

On Wednesday, CGS-CIMB analysts said that front-loaded redemption costs from WFS&rsquo medium-term notes are likely to &ldquo sink Sats back into net losses&rdquo in the first quarter of FY2024. 

 

&ldquo Nevertheless, we believe Sats will be able to offset the premium (from the medium-term notes) with finance cost savings of S$40.7 million per annum based on a refinancing rate of 4.5 per cent,&rdquo said its analysts. 

 

As a result of the expected near-term headwinds, CGS-CIMB now expects the aviation food solutions and gateway services provider to report a core profit down to S$111.4 million for FY2023 and S$234 million in FY2024, down 22.8 per cent 17.5 per cent, respectively, from their earlier estimates. 

 

The research house, however, kept FY2025 core profit forecasts unchanged at S$248.4 million. 

 

Based on the revised target price, CGS-CIMB analysts noted that Sats is now trading at a &ldquo steep&rdquo valuation for FY2024 versus the historical average, although the stock&rsquo s valuations &ldquo look more palatable&rdquo based on their FY2025 estimates.  

 

While UOBKH said Sats&rsquo FY2023 results represented a &ldquo slight miss&rdquo to the research house&rsquo s forecasts, it also said the counter&rsquo s recent share price drop has likely priced in downside risks. 

 

Despite cautioning of &ldquo subdued&rdquo earnings levels in FY2024, its analyst Roy Chen remains positive on the stock&rsquo s long-term earnings potential &ndash particularly FY2025, where he said the market can &ldquo feel the true earnings potential of Sats with WFS&rdquo . 

 

Chen also cut his FY2024 earnings estimates by 31.6 per cent to S$67 million to reflect the effects of weaker air cargo demand in the near-term. He remains cognisant that consensus forecasts remain &ldquo on the high side and are poised for further cuts&rdquo . 

 

However, the analyst raised his FY2025 earnings projections for Sats by 4.2 per cent to S$252 million and 2 per cent to S$286 million for FY2026. This is to factor in adjusted interest cost savings from WFS&rsquo early redemption of its notes.