Brokers' take: CGS-CIMB upgrades SATS to 'add' on recent share price weakness

CGS-CIMB has upgraded SATS S58 to "add" from "hold", as it views the ground handler's recent share price weakness resulting from the Russia-Ukraine conflict as an opportunity to accumulate.

The company's share price has fallen by about 9 per cent since Feb 22, likely in response to expectations of higher cost pressures in the near term, as well as the uncertain macroeconomic conditions arising from the Russia-Ukraine conflict, the research team said in a report on Thursday (Mar 10).

That being said, border reopening remains on track as the Singapore government opens more Vaccinated Travel Lanes (VTLs), along with reinstating capacity on these VTLs.

CGS-CIMB has also raised its target price on SATS to S$4.77 from S$4.34, after consolidating an estimated share of Asia Airfreight Terminal's (AAT) results.

This represents a potential upside of about 21.4 per cent from the counter's last trading price of S$3.93 as at the midday trading break on Friday. SATS' shares were up 0.8 per cent or S$0.03 at the time.

On Feb 23, SATS acquired an additional 16.4 per cent stake in AAT for about S$58.5 million, raising its total stake to 65.4 per cent. AAT is located at Hong Kong International Airport in Chek Lap Kok, New Territories, and offers services such as cargo handling and documentation processing.

CGS-CIMB analyst Tay Wee Kuang noted that the increased stake should contribute positively to the cargo business, which has benefited from secular growth of e-commerce during the pandemic.

After consolidating AAT's contributions, CGS-CIMB has adjusted its earnings per share estimates for FY2023 and FY2024 upwards by 3 per cent and 2 per cent respectively.