SATS' earnings will bounce back at a slow pace: analyst

The closure of Changi’s Terminal 2 is also bound to hit the firm in the coming months.

SATS’ recovery after the events of the COVID-19 pandemic are projected to move at a slow pace, as travel recovery is likely to slack off and Changi Airport’s throughput is expected to be low, according to a note by DBS Group Research.

“Whilst there is optimism that we are near the worst in this current pandemic situation, we believe travel recovery could be tepid and gradual and recovery to normal operating level could be stretched out,” said Alfie Yeo, analyst at DBS Group Research.

Further, both Singapore tourist arrivals in Changi’s passenger arrivals have declined dramatically from February by close to 90% YoY. This brought a knock-on effect on SATS, whose primary source of revenue is derived from Changi Airport.

Yeo also noted that Changi closed Terminal 2 for 18 months from 1 May till November 2021 to save costs due to poor air traffic and for upgrading works. “We estimate Terminal 2’s annual capacity to be 20-25 million passengers and the closure is an indication of low throughput expected at Changi,” he added.

As a result, DBS is projecting SATS’ FY2021 net loss to be at $89.7m and a net profit of $76.4m in FY2022.

In end-April, SATS posted its profit guidance. The firm is expecting their earnings to plunge 60%-70% in Q4 FY2020, before seeing an anticipated 25% recovery by Q1 FY2021. Including the government support scheme, SATS’ Q1 FY2021 net loss could be around $50-70m as it remains largely affected by a 95% drop in volumes of flights, passengers and meals.

Despite the grim outlook, Yeo noted that SATS still has “sufficient cash resources”. The firm was able to raise debt recently to shore up liquidity. It raised $200,000 fixed notes on 31 March at 2.88% due 2025 and $100,000 fixed notes on 24 April at 2.6% due 2025. Including other sources, aggregate debt funding amounted to c.$500m for working capital, contingency cash reserve and strategic growth initiatives.