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SATS earnings forecasts slashed, DPS projection trimmed as travel restrictions curb demand: DBS

Stanislaus Jude Chan
Stanislaus Jude Chan • 2 min read
SATS earnings forecasts slashed, DPS projection trimmed as travel restrictions curb demand: DBS
“We believe the worsening situation could delay any hopes of an early earnings recovery,” says DBS lead analyst Alfie Yeo.
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SINGAPORE (Mar 19): DBS Group Research is slashing its earnings forecasts for airline gateway services and food solutions provider SATS, as new travel restrictions across the globe threaten to choke net profit growth.

“We believe the worsening situation could delay any hopes of an early earnings recovery,” says lead analyst Alfie Yeo in a March 19 report.

As a result, Yeo is cutting his FY2021 to FY2022 earnings forecast by a further 23-25%, after factoring in an expected lower throughput at Changi Airport in Singapore, as well as weaker performance from its associates in Japan and around the region.

Importantly, Yeo has also lowered his dividend per share (DPS) projection.

He notes that SATS had cut its DPS and payout ratio previously during the 2009 global financial crisis. Further, he believes SATS could decide on a lower dividend payout to free up the cash resources it requires for its expansion plans going forward.

DBS is downgrading SATS to “fully valued”, from “hold” previously, and slashing its target price by 40.4% to $2.66.

The new rating means that the brokerage expects the counter to see a negative total return of between 10% and 20% over the next 12 months.

“We are neutral on the stock and expect lower margins and earnings growth going forward, led by lower traffic as a result of the Covid-19 outbreak globally,” says Yeo.

“Given that this situation has further escalated, we believe there are downside risks and tourists arrivals will weaken further underperform our initial projections,” he adds.

As at 4.03pm on Thursday, shares in SATS have plummeted 8.3%, or down 26 cents, to $2.86.

Year-to-date, the counter has tumbled 43.5%

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