SINGAPORE (July 23): Airline gateway services and food solutions provider SATS has seen its share price tumble more than 9% since last week.

On July 18, SATS posted a 14.4% drop in earnings to $54.7 million for the 1Q20 ended June – missing consensus estimates by a mile.

The disappointing results came on the back of weakening air cargo volumes, even as SATS was impacted by one-offs including the suspension of Jet Airways, the grounding of Boeing’s 737 Max aircraft, and credit provisions.

See: SATS posts 14.4% drop in 1Q earnings to $54.7 mil

As at 3.40pm on Tuesday, shares in SATS are trading at $4.92, some 9.2% lower than its closing price of $5.42 a week ago.

But some market observers say the worst is not yet over for SATS.

“We expect SATS to face cyclical headwinds over the next few quarters and this should lead to lower earnings and PE multiples,” says UOB Kay Hian analyst K Ajith. “SATS’ 1Q20 earnings were below expectations and stand in contrast to the street’s expectation of a 6.8% y-o-y rise for the full year.”

The brokerage is downgrading SATS to “sell” and lowering its target price to $4.80, from $5.05 previously.

The way Ajith sees it, weakening air cargo volumes will pose headwinds for SATS and it gateway associates.

“We expect operating environment to remain challenging over the next three quarters amid a slowdown in air cargo throughput across Asia,” the analyst says. “Demand for passenger traffic is still resilient, but there is a chance that that too would falter.”

However, Maybank Kim Eng Research analyst Neel Sinha is more optimistic.

“Most of the factors responsible for the miss are temporary in our view and should mend in coming quarters,” Sinha says.

Meanwhile, the analyst notes that SATS’ 59.4%-owned subsidiary in Japan, TFK Corporation, and key Indonesian subsidiary, PT Jasa Angkasa Semesta, are “on the mend”.

Maybank is keeping its “buy” call on SATS with an unchanged target price of $6.10.

According to UOB valuations, SATS is trading at an estimated PE ratio of 24.7 times and a dividend yield of 3.6% for FY20F.