CGS-CIMB raises stock to ' hold' OCBC' s research team notes easing of travel curbs

 

CGS-CIMB has upgraded its call on SATS from " reduce" to " hold" , and raised the counter' s target price from S$2.80 price to S$3.00.

 

OCBC Investment Research has maintained its " hold" call on the ground handler and food solutions provider, with a fair-value estimate of S$2.93.

 

Shares of SATS closed at S$3.10 on Tuesday, up S$0.02 or 0.7 per cent.

 

Both the research teams of CGS-CIMB and OCBC said the worst could be over for SATS OCBC Investment Research said a recovery in revenue passenger kilometres is likely to be recorded, as it had bottomed out in April 2020.

 

This comes as countries exit from lockdowns and ease travel restrictions, barring the risk of subsequent waves of infections, OCBC said in a research note on Tuesday.

 

The stock can be seen as a recovery play for long-term investors, CGS-CIMB analyst Lim Siew Khee said in a separate research note.

 

SATS' recorded S$43.7 million loss for the first quarter ended June 30, 2020 was in line with the company' s guidance of " narrower than S$50 million to S$70 million" , but missed CGS-CIMB' s more hopeful net-loss estimate of S$30 million. Revenue and associate performance were key misses.

 

" We believe this could be the worst quarter due to improving cargo volume, heading into the peak season (September to December 2020), as well as better freight rates on the back of stronger demand for perishable and medical supplies," Ms Lim said.

 

CGS-CIMB' s research team factored in sequential recovery in revenue of 5 per cent in its Q2 2021 forecast, and 15 per cent in its Q3 2021 forecast.

 

CGS-CIMB cut its forecast for FY2021 to FY2023 earnings per share by 2 per cent to 29 per cent, to reflect weaker-than-expected associates and slower recovery in the aviation sector in general.

 

SATS is the worst-performing stock at about negative 40 per cent year to date among the large-cap FSSTI stocks. This may have priced in structural challenges in the aviation sector, Ms Lim said.