The Thesis Is Working. The Stock Is No Longer Cheap.
I wrote about SATS in June with a blended entry of SGD3.56.
The stock is SGD4.73 now.
More importantly, the business has moved too.
The original thesis was simple. WFS would turn SATS into a global cargo platform, margins would expand as the acquisition was integrated, and debt would gradually come down.
The FY26 results say that is happening.
That doesn’t automatically make the stock a buy.
At this price, I’m paying for a lot of the execution already.
The Big Picture
The mistake with SATS is still the same one.
People look at it as a catering company.
That’s not what you’re buying anymore.
You’re buying a global aviation services business with a large air cargo operation, a growing international network and an earnings profile that should improve as WFS continues to integrate.
The question has moved from “Will the acquisition work?” to “How much of that success is already in the price?”
That’s a much harder question.
What’s Working
FY26 was a record year.
Revenue of SGD6.35 billion, up 9.0%.
Operating profit up 14.2% to SGD543.3 million, with margin going from 8.2% to 8.6%.
PATMI of SGD285.2 million, up 17.0%. EBITDA up 10.6% to SGD1.15 billion.
Revenue up 9% and operating profit up 14% is the operating leverage I said I wanted to see.
Cargo is where they’re winning share.
9.65 million tonnes for the year, up 7.0%, with EMEAA up 15.3% and APAC up 8.4%.
SATS has beaten IATA’s global cargo benchmarks for two and a half years now.
That’s share gain, not a rising tide.
Gateway is carrying the group.
Gateway Services revenue up 10.8% to SGD4.95 billion. Food Solutions up 2.9% to SGD1.39 billion.
That mix shift is exactly what WFS was bought to produce.
Debt is heading in the right direction.
Gross debt down to SGD4.14 billion from SGD4.24 billion, equity up to SGD2.94 billion, gearing improving from 1.53 times to 1.41 times.
Operating cash flow after lease repayment was SGD560.5 million, up SGD110.5 million.
Every dollar repaid makes the equity story a little easier.
The dividend is finally moving.
Final dividend of 5.0 cents, up 43%, taking FY26 to 7.0 cents against 5.0 cents last year.
Still a thin yield at this price.
The direction matters more than the level right now.
What Could Go Wrong
The Middle East conflict is a real drag, not a footnote.
It escalated in the final month of the quarter and hit revenue, costs and associate earnings.
Flight suspensions across Gulf hubs disrupted traffic between Asia, Europe and the Americas. Management is rerouting through European lanes.
This one is still live.
Fourth-quarter margins went backwards.
Full-year margins expanded, but 4Q alone saw EBITDA margin fall from 17.4% to 16.5% and operating margin from 7.3% to 6.7%, partly on ramp-up costs for new food facilities.
I want to see 1Q FY27 before assuming the trend is intact.
Free cash flow went the wrong way.
SGD215.8 million against SGD228.3 million last year, despite stronger operating cash generation.
Higher capex and lease payments took the difference.
That’s investment rather than deterioration. It still slows the deleveraging the market is waiting to reward.
The Americas are still soft.
Americas cargo volumes fell 5.0% for the year on tariff pressure, and EMEAA flights handled dropped sharply after the UK ground handling disposal.
APAC and Europe have covered it so far.
The valuation has caught up.
At SGD4.73 against FY26 basic EPS of 19.2 cents, that’s around 25 times.
When I bought at SGD3.56, the multiple was doing some of the work for me.
It isn’t anymore. I’m less worried about whether SATS can execute than about what happens if it executes slightly below expectations.
Valuation: What’s It Worth?
Analyst targets sit between SGD4.42 and SGD4.96, with CGS International at SGD4.68 on a DCF basis after the FY26 results.
The stock is SGD4.73.
So it’s trading roughly where analysts already think it should be.
That’s not a reason to sell. It’s a reason to stop expecting easy money.
CGS reckons SATS beats its FY2029 net profit margin target by FY2028, mainly through gateway services. If that’s right, the earnings base in three years looks very different and 25 times doesn’t age badly.
If it’s wrong, or the Middle East disruption drags into FY27, I’m holding a fairly priced logistics business in a volatile trade environment.
The Bottom Line
My blended entry is SGD3.56.
I’m still holding.
But I’m less enthusiastic about adding here than when I wrote the original piece. That’s not a contradiction. A business can improve while a stock becomes less attractive.
The yield is too thin to anchor on, so I’m using earnings.
On FY26 basic EPS of 19.2 cents, SGD4.22 is 22 times and SGD3.84 is 20 times.
SGD4.22 is where I’d look again.
SGD3.84 is where I’d add, and that also sits about 13% below the low end of the analyst target range.
Things I’m watching from here: how much the Middle East conflict bleeds into FY27, whether 4Q’s margin compression was a one-off, the pace of debt reduction now that capex has stepped up, cargo share gains against IATA benchmarks, and any concrete news on Changi Terminal 5.
The turnaround is real.
Now I need the earnings to grow faster than the price does.
Disclaimer
This is not investment advice. The information may not be accurate. If in doubt, seek professional advice. Do your own research. The author is not responsible for any losses you may suffer from taking a position in any asset mentioned here.