Sats yet to see ' material disruption' from Middle East situation

Sats says it is " deeply concerned" with the unprecedented airspace closures in some Gulf States that are affecting the global air cargo supply chain.

While flight disruptions may temporarily delay some shipments, Sats says air cargo typically moves through alternative routes as supply chains adjust. " Sats&rsquo global presence positions our network to mitigate or manage supply chain disruptions, and to serve changing trade flows," the company says.

For the company, the Middle East is seen as a " fast-growing and opportunity-rich" region, with demand driven by e-commerce and specialised cargo services such as pharmaceuticals, temperature-sensitive, and time-critical express cargo.

Its operations in Saudi Arabia recorded a 12% increase in air cargo volume handled from 2024 to 2025, but this amounts to a small part of its global tonnage.

Sats shares traded at $3.67 as at 2.11 pm, unchanged for the day but down from $3.80 on Monday, just after fighting broke out over the weekend.

DBS Research - Cargo strength drives earnings beat in 3QFY26 with firm momentum into FY27F

3QFY26 PATMI of SGD84.7mn (+20.4% y/y) beat consensus, with 9MFY26 at 81% of our FY estimate and 85% of consensus, tracking in line with our numbers and ahead of the street

Outperformance led by robust cargo revenue (+12.2% y/y), with record volumes (+7.3%) outperforming the sector for the ninth straight quarter and cargo yield up 4.6%
Group operating margin strengthened 80bps y/y to 9.2% sequential dip in margins reflects normalisation from an unusually lean 2Q cost base
Forward earnings estimates largely in-tact lift TP to SGD4.50 as we roll forward our valuation peg

3QFY26 results above expectations due to cargo outperformance.  SATS reported 3QFY26 PATMI of SGD84.7mn (+7.3% q/q, +20.3% y/y), bringing 9MFY26 PATMI to SGD234.5mn, equivalent to 81% of our FY26 estimate and 85% of consensus, tracking in line with our projections and running ahead of the street. Gateway Services revenue grew 10.0% y/y to SGD1.28bn, driven by cargo handling revenue up 12.2% y/y to SGD865.3mn and ground handling revenue up 5.7% y/y to SGD417.6mn. Total group cargo reached a record 2.55mn tonnes (+7.3% y/y), with SATS APAC cargo up 10.6% reflecting strong intra-Asia flows and semiconductor-related demand, while WFS cargo rose 5.8% despite US weakness due to strong Europe performance. This quarter marked the ninth consecutive quarter SATS outperformed industry growth, with total cargo volumes up 10.6% vs industry 4.6%, reflecting the group&rsquo s ability to leverage its integrated SATS&ndash WFS global network to win contracts such as Turkish and Emirates in the US, while deepening wallet share across with existing customers. Group cargo yield increased 4.6% y/y, reflecting improved pricing and better mix of more higher-value shipments, while ground handling yield rose 5.8% due to network optimisation. Gateway segment operating profit rose 6.1% y/y with margin down slightly by 40bps to 9.3%. Food solutions top-line was flattish as increased aviation (+4.3% y/y) and non-aviation meals (+7.1% y/y) was offset by lower ASPs due to a shift in geographic mix (more China + Japan), though operating margins strengthened slightly by 0.4ppt y/y to 8.4% due to positive operating leverage Meanwhile, share of equity earnings from associates/JVs increased 15.3% q/q, reflecting normalisation from earlier start-up costs at certain JVs. 

 

Solid earnings momentum heading into FY27F, underpinned by sustained cargo share gains and visible customer conversion.  While 4Q will reflect typical seasonality, management remains confident of continuing to outpace industry growth, and we believe cargo volumes are likely to expand at high single digit rates in 2026. Demand remains supported by AI and semiconductor flows, trade re-routing and new customer wins, while added capacity at Heathrow, Frankfurt and Noida positions SATS to capture incremental volumes. In food, resilient international passenger growth across APAC, the Turkish Airlines win in Japan, and expanding traction at the China central kitchen should support steady aviation catering growth, with Bangkok ramping in phases to manage fixed cost absorption. Ground handling should continue to benefit from APAC traffic expansion and Brazil momentum, although US domestic softness may persist amid disciplined airline capacity deployment. Additionally, active review of US station economics, including contract repricing and minimum volume thresholds, should help preserve margins despite softer US passenger demand, reinforcing earnings visibility into FY27F.  While our estimates remain intact, we raise our TP to SGD4.50  as we roll forward our valuation to 20x (unchanged) blended FY26/27F EPS.