SATS shares fall 6% after Q1 results announcement
SATS shares fell 6 per cent in active trading on Friday after the airport and food services provider reported a 14.4 per cent drop in its first quarter net profit on Thursday.
The counter lost 32 Singapore cents to close at S$5 on a volume of 14.05 million shares.
Revenue for the first quarter was up 5.8 per cent from a year ago, but growth in gateway services and food solutions was partially offset by lower cargo volume, which fell 1.6 per cent due to "global trade uncertainties", SATS said.
Analysts at DBS Group Research and CGS-CIMB downgraded the counter to "hold" from "buy", while OCBC maintained its "hold" call.
DBS analysts Alfie Yeo and Andy Sim reduced their target price on the stock to S$5 from S$5.44.
Although headline revenue grew, it was largely due to the consolidation of Ground Team Red (GTR), they said, noting that without the S$22.5 million contribution from GTR, revenue would have been flat at S$442 million, or up just 0.6 per cent year-on-year.
"We expect lower margins and earnings growth going forward, led by a weak cargo outlook and consolidation of lower margin GTR operations," the DBS analysts added.
On a positive note, they listed as potential price catalysts margin improvement at GTR, the freeing up of financial resources from SATS' memorandum of understanding with Turkish Airlines to pursue other deals and pay out more dividends, and faster-than-expected ramp-up of Changi Airport Terminal 4.
CGS-CIMB analyst Lim Siew Khee kept her target price unchanged at S$5.40, noting that while SATS' net profit of S$55 million was slightly below the bank's S$60 million forecast, its total revenue was broadly in line with expectations.
"The key variance came from higher depreciation with the adoption of SFRS 16 which resulted in recognition of right-of-use assets and higher 'other costs' due to maintenance for ground support equipment and vehicles, IT expenses, fuel costs and etc," Ms Lim said.
She expects revenue from SATS' Japanese subsidiary to continue growing in 2020 in the lead up to the Tokyo Olympics next year.
Other factors that could impact SATS' business include macro weakness, which could put pressure on travelling demand. Ms Lim added: "Sizeable M&A (mergers and acquisitions) is a re-rating catalyst while a sudden plunge in aviation trend is a key risk."
OCBC analyst Chu Peng, who held onto her "hold" call and fair value estimate of S$5.35, noted: "Despite the slowdown in the global economy which is likely to continue to weigh on cargo volume, the rising aviation passenger volumes in Asia and demand for safe and convenient food could bring growth opportunities to SATS."
