DBS Group Research and OCBC Investment Research have lifted their target prices for Sats : S58 0% after the in-flight caterer and ground handler last week posted a jump of more than 10 times in profit for the half-year ended Mar 31.
Both research houses continue to rate the stock at “buy”.
On Tuesday (Jun 4), DBS raised its price target on Sats to S$3.60 from S$3.40 after rolling forward its valuation peg to FY2025.
Its analyst Jason Sum highlighted the stock for its “attractive” risk-to-reward setup with a projected 25 to 30 per cent upside from its current share price level.
While the group’s fourth-quarter results beat expectations, Sum noted that DBS’ FY2025 to FY2026 earnings estimates remained intact as the research house was already anticipating “considerable growth” in Sats’ earnings over the next two years.
Its dividend-per-share estimates were also slashed to S$0.03 from S$0.06 for FY2025 and S$0.05 from S$0.09 for FY2026 to assume a lower dividend payout ratio.
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Sats’ resumption of dividends was nonetheless a positive surprise, said Sum, who added that the move signalled its management’s optimism about the group’s prospects.
Though DBS raised its revenue estimates in the near term to reflect pricing improvement and stronger segmental volume growth, Sum cautioned that this would be offset by higher finance costs and tax expenses.
The analyst however foresees “meaningful interest savings” in view of Sats’ recent completion of its refinancing of debt from its acquisition of Worldwide Flight Services (WFS).
In his view, Sats’ WFS acquisition could start yielding operational and financial synergies over the next few years.
“More importantly, the market will be paying attention to the assimilation of WFS and whether the group can achieve its intended operating synergies within its projected timeline, to justify the hefty price tag on WFS,” added Sum.
Last Friday, OCBC revised its fair value estimate on Sats up to S$3.31 from S$3.09 while noting that the group’s FY2024 bottom line was a “strong beat”.
Its analyst Ada Lim said that the group’s top-line growth would likely be driven by more commercial wins for its gateway services segment, along with further market penetration for its food solutions business given its increased production capacity.
Lim said she remained “constructive” on Sats’ outlook.
Continued strength in global air travel demand would bode well for the group’s gateway services segment even as its pace of recovery begins to moderate, she added.
Shares of Sats were trading S$0.03 or 1.1 per cent higher at S$2.87 on a cum-dividend basis as at 10.33 am on Tuesday.
