SATS shares soar with profit turnaround - Our Quick Take

SATS shares soar following 1Q FY24/25 earnings

SATS' share price rose 10% to reach S$3.55 as of mid-day on 21 August 2024. 

Earlier in the day, SATS' share price had reached a 52-week high of S$3.58. 

With the share price gain, SATS' share price would have gained by 29% year-to-date.

The company's latest earnings seem to have led to more investors being positive on the stock. 

Let us find out what is driving the improved sentiment towards SATS' shares. 

Summary of SATS 1Q FY24/25 results

SATS reported its earnings for the first quarter of fiscal year 2024/25 (1Q FY24/25).

• SATS posted 1Q FY24/25 net profit of S$$65.0m, a turnaround from 1Q FY23/24’s loss of S$29.9m, where it incurred a one-off cost of S$22.4m relating to the integration of WFS after the acquisition. 
• SATS' profit of S$65.0 in 1Q FY24/25 has doubled from 4Q FY23/24’s net profit of S$32.7m. 

At the revenue line, 1Q FY24/25 was 15.5% higher year on year, and 2.4% higher than 4Q FY23/24.

Revenue improvement over 1Q FY23/24 came from:

1) increase in number of aviation meals served (+26.8%), in line with recovery in travel demand; and 

2) higher cargo tonnage (+19.0%). Demand has risen since 3Q24 (Oct-Dec 2023), exacerbated by the Red Sea conflict which led to migration from maritime cargo to air freight. 

With air travel volume at near pre-Covid level, growth for aviation meal flattened out to 1.7% over 4Q24. Cargo volume growth over 4Q24 was also softer at 5.2%.

EBITDA margin expanded to 18.2% (1Q24: 13.1%) with the biggest jump at food solutions (+9.2%-point to 12.2%) as it enjoyed operating leverage with volume increase. Margin improvement at gateway was smaller at 2.8%-point to 19.1%. 

Debt has reduced by S$66m to S$2.65bn. Net gearing at end-June was 0.74x, a slight improvement from S$0.8x at end Mar.  It generated operating cash inflow of S$78.3 in this quarter, a reversion from cash outflow of S$38.4m in 1Q24.

SATS has entered into strategic partnerships with Mitsui, Shun Feng and Kuehne + Nagel to expand its overseas footprint and optimize its network efficiencies.

Beansprout's take on SATS 1Q FY24/25 earnings

SATS is focused on reducing debt and cost of borrowings. It will seek to refinance a S$300m bond maturing in Mar/Apr 2025 and a Euro550m debt.

The company is also working on cost synergies to meet its target of S$200m for this year. It has achieved S$51m in 1Q25.

SATS’ net profit may be lifted if it refinanced its debts at lower interest rates and achieved the target cost savings of S$200m for FY25.

In the near term, SATS' volumes may continue to grow from the low base in the previous year. However, the quarterly growth may eventually taper as sea freight rates have moderated in recent weeks. 

SATS currently trade at a P/E ratio of 18x, below its historical average of 24x. The company's price-to-book ratio is at 2x, below its historical average of 2.6x. 

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Related links:

• SATS share price and share price target
• SATS dividend forecast and dividend history

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