BROKERAGES have expressed opposing views on what Sats : S58 +3.91%&rsquo H1 financial and operating metrics could mean for the group&rsquo s recovery ahead.

 

Citi upgraded its call on the stock to &ldquo buy&rdquo from &ldquo neutral&rdquo , while raising its price target to S$3.01 from S$2.98. CGS-CIMB also upgraded its &ldquo hold&rdquo rating to &ldquo add&rdquo with a higher target of S$3 compared with S$2.86 previously.

 

On the contrary, Phillip Securities downgraded its recommendation to &ldquo reduce&rdquo from &ldquo neutral&rdquo as the brokerage cut its target price to S$2.23 from S$2.51.

 

Their moves come after the ground-handling and inflight catering services provider last week reported a narrower net loss of S$7.8 million for the first half of the fiscal year, and a net profit of S$22.2 million for Q2.

 

Citi analyst Kaseedit Choonnawat said he was &ldquo increasingly confident of Sats&rsquo sequential earnings recovery&rdquo , given how the group has started to deliver profits post its acquisition of Worldwide Flight Services (WFS).

 

This is coupled with the group&rsquo s positive operating leverage as its global air cargo volumes returned to the green on a year-on-year basis since August 2023.

 

Despite lowering its core earnings estimates over FY2023 to FY2024, the brokerage raised its projections for Sats over the following two financial years.

 

&ldquo Our 20 times price-to-earnings ratio valuation is in line with Sats&rsquo pre-Covid range and 2024 average of major global air-freight forwarders compared to 17 times currently,&rdquo said Choonnawat in a report on Monday (Nov 13).

 

He added that FY2024/25 remains an &ldquo anchor year&rdquo for the group as he expects full normalisation of passenger traffic during this period. 

 

Similarly, CGS-CIMB analysts said that Sats&rsquo second-quarter performance pointed towards &ldquo better visibility of sustained profitability&rdquo .

 

The brokerage has raised its FY2024 earnings per share (EPS) estimates by 121.2 per cent while revising its FY2025 projections up by 49 per cent, and upwards by 22.4 per cent for FY2026.

 

Despite staff costs rising quarter on quarter, its analysts reckon that Sats has &ldquo reached an optimal level of staffing&rdquo given how the group&rsquo s Q2 staff count declined marginally from the previous quarter.

 

They also expect a recovery in the food solution segment to drive the group&rsquo s near-term growth ahead.

 

&ldquo We think the continued recovery in the aviation industry would drive meals served on flights for Sats, resulting in the segment&rsquo s earnings before interest and taxes margins reverting towards FY2018-2020&rsquo s average of 14.7 per cent by FY2025.&rdquo

 

Conversely, Phillip analyst Peggy Mak remarked that the &ldquo mix was disappointing&rdquo for Sats&rsquo H1 financials as its food solutions segment remained in the red despite its recovery in revenue to pre-Covid levels.

 

&ldquo Further growth is limited given the manpower and capacity bottlenecks faced by airlines. Thus, we are concerned that further improvement in food solutions earnings could be muted,&rdquo said Mak.

 

Noting that the group&rsquo s Ebit &ldquo barely covered&rdquo its higher interest expenses on debt incurred for WFS&rsquo acquisition, she also cautioned of higher working capital needs which could arise from the acquisition of WFS. 

 

Mak nonetheless remained positive on the potential for the group to report improving operating leverage from higher cargo volumes, which could lift Sats&rsquo overall operating margin from its current level of 3.1 per cent.

 

IN-FLIGHT caterer and ground handler Sats : S58 0% on Friday (Nov 10) posted a net loss of S$7.8 million for its first half of FY2024 ended September, narrowing from its net loss of S$32.5 million in the corresponding year-ago period.

 

For the second quarter of the financial year, the mainboard-listed group delivered S$22.2 million in net profit &ndash its first earnings without government relief since the pandemic struck in early 2020. 

 

It had recorded a net loss of S$29.9 million for Q1. 

 

The improvement in financial performance came on the back of a year-on-year increase in the top line of about 7 per cent, to about S$1.3 billion, based on bourse filings made by Sats on Friday.

 

At an earnings call after the results release, chief financial officer Manfred Seah attributed the better quarterly performance to an increase in business volumes, yield management as some cost increases have been passed on to customers, and productivity enhancements.  

 

As at the end of September 2023, flights handled and aviation meals served had returned to 82 per cent and 83 per cent of pre-Covid levels, respectively.

 

No interim dividend will be paid out, said Sats&rsquo board of directors, as it believes it would be prudent not to pay one for FY2024 until Sats is able to return to profitability.

 

The board pointed out that not paying an interim dividend this time will enable the group to conserve cash to fund its operational and working capital requirements, as well as to reduce leverage as soon as possible.

 

&ldquo Restoration of dividend payout is the next thing that we&rsquo re looking for,&rdquo said Kerry Mok, chief executive, during the call.

 

Sats&rsquo gross debt-to-equity ratio jumped to 1.66 times as at end-September, from 0.59 times as at end-March.

 

Current liabilities rose by S$1.1 billion to S$1.7 billion, mainly from the addition of Worldwide Flight Services&rsquo (WFS) lease liabilities and trade and other payables. 

 

WFS is an air cargo logistics business that Sats had acquired in April.

 

Non-current liabilities of the group increased by S$2.6 billion to S$4.2 billion, also mainly due to higher borrowings and WFS&rsquo lease liabilities.

 

Meanwhile, free cash flow was still at a deficit of S$20.7 million for H1 FY2024, though this marked a narrowing from S$87.4 million for the year-ago period.

 

Mok said the integration of WFS and Sats was &ldquo progressing well&rdquo , adding that the group is realising &ldquo internal and commercial synergies&rdquo which are reflected in its half-year financial results.

 

Revenue for H1 FY2024 more than trebled year on year to S$2.5 billion from S$804.5 million. This was driven primarily by the consolidation of WFS &ndash which contributed S$1.4 billion to group revenue.

 

Excluding the contribution by WFS, revenue growth for H1 FY2024 was bolstered by the recovery in the aviation sector, said Sats, with both the group&rsquo s food solutions and gateway services segments recording higher revenue year on year.

 

Group expenditure increased to S$2.4 billion for H1 FY2024, from S$846.8 million in H1 FY2023. This was in line with revenue growth and the consolidation of WFS, Sats noted.

 

Excluding the consolidation of WFS, the rise in expenditure was due to the increase in business activities resulting from global travel recovery and inflationary cost pressures, the group added.

 

Loss per share stood at S$0.005 for H1 FY2024, down from S$0.024 a year ago.

 

Net asset value per share was S$1.56 as at end-September, compared with S$1.57 as at end-March.

FOOD solutions and gateway services group on Tuesday (Sep 5) announced that it has appointed Pier Sigismondi as an independent non-executive director and a member of the company&rsquo s board Risk and Safety committee, with immediate effect.

 

Sigismondi, 57, is currently the executive chairman of Sustenir Group, an urban farming startup backed by state investor Temasek. He began this role in August 2020. 

 

In its filing to the Singapore bourse, Sats acknowledged that Sustenir may enter into transactions with Sats &ldquo from time to time&rdquo . 

 

Sigismondi will thus recuse himself from participating in all matters between Sats and Sustenir, or any of Sustenir&rsquo s competitors, Sats said. 

 

He was the president and executive vice-president of Dole Sunshine Company from February 2019 to June 2023, where he spearheaded a &ldquo purpose-led transformation&rdquo over the course of four years. 

 

Before that, he worked for a decade at Unilever. From 2009 to 2015, he was the chief supply chain officer of Unilever London. Thereafter, from 2016 to 2018, he was the executive vice-president and president for South-east Asia and Australasia region of Unilever Singapore. 

 

Sats said that his diverse experience and background in food and beverage businesses will add value and synergy to its board and enhance the existing competencies and skills within the listco&rsquo s board. 

 

Sigismondi does not have any prior experience as a director of a stock listed on the Singapore Exchange, and will attend the prescribed training within a year of the date of his appointment, Sats added.