Citi Research analyst Kaseedit Choonnawat has kept “buy” on SATS with a target price of $4.70 as Singapore announced that it was expanding its vaccinated travel lane (VTL) lists to nine more countries.

On Oct 9, the republic announced that vaccinated travellers will be able to fly to Canada, Denmark, France, Italy, the Netherlands, Spain, the UK and the US from Oct 19.

Vaccinated travellers will also be able to fly to South Korea from Nov 15 under the VTL scheme.

According to Choonnawat in an Oct 10 report, SATS will be a key beneficiary on the expansion of the VTLs. The airline company is also his top pick among the Asean aviation sector, he reveals.

The way he sees it, the VTL is different to the reciprocal green lanes (RGLs) in that it is better for the travel sector.


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RGLs targets essential travelling and requires official or company sponsorships, which have been yielding limited passenger traffic recovery at Changi Airport.

“We believe VTLs should show more positive results as potential travellers can self apply online, most counterparty countries have been accepting international visitations without mandatory quarantine, i.e., Europe with certain conditions and visible empirical evidence of international travelling recovery among leisure centric countries such as Mexico and Turkey,” he writes.

Australia’s decision to lift its international travel ban from November could see the country being included in Singapore’s VTL as well.

While traffic recovery from VTLs to Singapore may not be as sharp as leisure-centric countries, Choonnawat estimates that the expansion will cover some 16% of 2019’s arrivals to Singapore.

The leisure segment accounts for just over 50% of visitors’ purpose to Singapore. Business purposes, on the other hand, account for around 40%.

On this, Choonnawat views that his forecast of SATS’ FY2022 passengers handled reaching 39% of FY2020 is subject to delay risks.

That said, his forecast is “moving in the right direction in our view”.

In his report, Choonnawat’s estimates include an average weighted average cost of capital (WACC) of 8.2%, a medium-term traffic compound annual growth rate (CAGR) of 3.3% over FY2020-FY2030.

The CAGR uses the traffic at Changi Airport as proxies.


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Choonnawat has also estimated SATS’s capital expenditure (capex) to be at $1.5 billion over the next nine years.

“Cost of equity (COE) of 8.2% is based on 3.2% Rf, 0.83 times market beta during 2019 and 6% Rp. We assign terminal growth of 3%. We conservatively value associates at forecasted book value,” he writes.

Downside risks include challenges related to logistics for the leading vaccine and new Covid-19 variants.

“However, we believe investors would take a forward view given the credibility of latest vaccine development. Other counter-party countries taking longer than expected to reciprocally reopen borders with Singapore would delay traffic recovery. Any of these or other factors that impact flight traffic volumes could cause the shares to fail to reach our target price,” he says.

Shares in SATS closed 16 cents higher or 3.84% up at $4.33 on Oct 11.