Hot stock: SATS hits 2-week low after earnings miss analyst expectations

SHARES of SATS tumbled as much as 4.2 per cent on Tuesday (May 31) after the food solutions and gateway services provider’s financial results missed analyst expectations. 

The counter dropped as much as 4.2 per cent or S$0.19 to reach S$4.35 as at 9.05 am. The last time SATS closed near this level was on May 13. By the midday trading break, SATS was down 3.7 per cent or S$0.17 to S$4.37, with around 4.3 million shares changing hands.

SATS posted a net profit of S$7.2 million for H2, swinging into the black from a net loss of S$2 million in the year-ago period. Earnings per share rose to S$0.006, from a loss per share of S$0.002 the year before.

However, the group recorded an operating loss of S$46.6 million in H2 due to higher costs and lower government grants. Excluding government grants, group profit after tax and minority interests (Patmi) would be a loss of S$46.6 million.

The group’s results for the fourth quarter ended Mar 31 were below expectations for DBS Group Research. SATS booked a Q4 core net loss of S$26.8 million, versus a profit of S$13.2 million in the year-ago period. Operating losses were also steeper at S$37.1 million due to a decline in revenue and a marked increase in staff costs.

“SATS’ year to date share price performance has outperformed related aviation names; it may be prudent to take profit and consider rotating into other names like Singapore Airlines and ST Engineering that are better positioned to deal with rising inflation,” DBS noted.

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SATS back from the red with H2 earnings of S$7.2 million

It currently has a “buy” rating on the stock and a target price of S$4.90, representing a potential upside of 12.6 per cent.

That being said, DBS believes recovery in the travel segment will likely see stronger traction over the coming quarters given solid progress on the reopening front in the region and globally. However, the research team foresees several cost headwinds on the horizon impeding earnings recovery in the near term.