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Completion of SATS's WFS acquisition lifts share price overhang, says CGS-CIMB

Nicole Lim
Nicole Lim • 3 min read
Completion of SATS's WFS acquisition lifts share price overhang, says CGS-CIMB
CGS-CIMB Research analysts have kept their 'add' call and target price of $3.10 on SATS. Photo: SATS
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CGS-CIMB Research analysts Tay Wee Kuang and Lim Siew Khee are reiterating their “add” call on SATS S58 -

with an unchanged target price of $3.10, citing that the completion of the acquisition for Worldwide Flight Services (WFS) has lifted the aviation company’s share price overhang.

The completion means investors will now be looking to the execution of the business integration between SATS and WFS amid the former’s potential return to profitability in FY2024 ending March 31, 2024.

In their report dated April 6, the analysts are estimating that WFS may contribute $4.1 million to SATS’s net profit in FY2024. This is contingent on cost savings from refinancing a portion of WFS’s outstanding bond by 1HFY2024.

“We recognise that the expanded footprint from WFS could expose SATS to greater forex risks as well given WFS’s exposure to [the] US dollar (USD) and Euro,” they say.

SATS announced the completion of WFS on April 3 following which the latter will become a fully-owned subsidiary of SATS. WFS will continue to remain headquartered in Paris and operate under its original name. WFS’s CEO, Craig Smyth, will continue to run the company and report to SATS’s president and CEO Kerry Mok and an advisory board.

For the 4QFY2022 ended Dec 31, 2022, WFS’s net profit grew by 28.7% y-o-y to EUR22.1 million ($32.17 million), marking a return to profitability after three quarters of losses, as the appreciation of Euro against the USD led to a EUR36.0 million reversal of provision on unrealised foreign exchange losses.

See also: CGSI and OCBC keep ‘hold’ calls but increase TPs for Keppel DC REIT after Japan data centre acquisition

Without this, and excluding non-recurring expenses of EUR10.9 million, WFS posted a 4QFY2022 core net loss of EUR3.0 million due to the incremental financing costs from refinancing its outstanding bonds in 1QFY2022.

At its investor and analyst briefing on April 5, WFS management shared its expectations for a slower air cargo outlook coming off a record year for air cargo volumes in 2021 which is likely to extend into the calendar year (CY) 2023, but the analysts say that key contract wins since the start of the year will mitigate challenging air cargo outlook.

The contracts with Zongteng Group, China Eastern Airlines and Saudia Cargo could allow WFS to handle up to 220,000 tonnes of cargo annually by end-CY2023, say the analysts.

See also: CGSI expects Wilmar’s 2QFY2024 earnings to be ‘flat’; sees 2HFY2024 to be ‘better’

The analysts also highlight that cargo volumes handled in 4QFY2022 remained [at around] 10% above pre-Covid-19 (i.e. 4QFY2019) levels, according to WFS, while its ground handling volumes also recovered to less than 5% below pre-Covid-19 levels.

Meanwhile, SATS announced the signing of a three-year memorandum of understanding (MOU) with Mitsui & Co. that can be extended in two-year increments after the first three years.

“Under the MOU, SATS could tap Mitsui’s extensive distribution network and supply sources to grow demand for its products and services and diversify its supply chain. In return, Mitsui could harness SATS’s culinary, food, technology, innovation and production capabilities to provide value-added services to its customers and potentially leverage SATS’s infrastructure and logistic businesses and assets in the Asia Pacific region to grow its business,” the analysts add.

Shares in SATS closed 4 cents lower or 1.41% down at $2.79 on April 12.

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