SATS Ltd: Cargo led beat again in 2QFY26;growth story intact
- 2QFY26 core PATMI rose 13.2% y/y to SGD78.9mn; 1HFY26 PATMI of SGD149.8mn represented 55% of the street’s full-year estimate.
- Revenue grew 8.4% y/y to SGD1.6bn, led by cargo (+14.3% y/y) on the back of solid volume and pricing gains.
- 2QFY26 operating margin strengthened 124bps to 10.0%, the highest level since the onset of the pandemic, despite a slight dip in Food margins due to the absence of one-off gains.
- Sustained cargo market share gains, along with improved yield and positive operating leverage should underpin earnings momentum and help SATS weather any potential slowdown in air cargo
2QFY26 core PATMI of SGD70.5mn (+20.0% y/y) surpassed expectations, with 1HFY26 PATMI of SGD149.8mn forming 55% of the street’s full-year projection. The beat was driven by both top-line and operating margin outperformance, supported by robust cargo volume growth and higher cargo and ground handling yields owing to more specialised/value-added services and a favourable mix.
Group revenue grew 8.4% y/y to SGD1.6bn, primarily led by the SATS Gateway segment, with cargo and ground handling revenue up 14.3% y/y to SGD811.6mn and 4.2% y/y to SGD404.0mn, respectively. Growth was underpinned by higher cargo tonnage (SATS: +7.0% y/y, WFS: +8.4% y/y) despite a moderate drop in cargo volumes in the Americas (-7.9% y/y) owing to a contract adjustment with a customer (note that the decline in the region would have been consistent with IATA figures excluding this), and an increase in yields (ground: +4.3% y/y, cargo: +5.8% y/y). Notably, management highlighted that strength in the cargo segment was supported by technology and AI-related goods. Meanwhile, Food revenue was flattish (+1.0% y/y) at SGD356.5mn, as incremental volumes were offset by a decline in aviation ASPs (one-time boost in 2QFY25).
Group operating margin strengthened to 10.0% (+124bps) in 2QFY26, the highest level since 4QFY20, with Gateway segment margins expanding 104bps to 10.9% (despite 2QFY25 benefitting from the one-off boost), nearly on par with pre-pandemic levels, driven by both higher yield (more specialised and value-added services) and positive operating leverage. Conversely, Food margins fell by 91bps due to the absence of one-off gains recorded in 2QFY25 from a double-counted contract repricing with SIA.
Share of profits from associates and JVs (SOAJV) declined moderately by 7.4% y/y to SGD27.5mn due to ramp-up costs tied to new customer onboarding at a JV, where SATS is taking on higher costs to ramp up capacity for the customer, but this was broadly in line with expectations.
Lift FY26F but trim FY27/28F core net profit estimates as tariff impact shifts into 2026. We raise our FY26F core net profit estimate by 6.9%, but revise our FY27/28F projections down by 2.7%/1.9% to reflect the delayed effect of tariffs on cargo volumes - Global merchandise trade has held up this year despite a volatile trade environment due to front-loading, suggesting that part of the demand pull-forward could unwind in 2026. The WTO recently lifted its 2025 global merchandise volume growth forecast to 2.4% (from 0.2%) but cut its 2026 projection to 0.5% (from 2.5%) as tariff effects shift into next year. Meanwhile, our projections for the ground handling and aviation food segments remain largely intact. Although we expect a drop in North America flight volumes in 4Q2025 due to the US shutdowns, travel has already begun to rebound following the reopening, and forward booking data in Asia continues to reflect resilient air travel demand. That said, we expect a slight impact on SATS’s China and Japan aviation catering businesses due to the travel advisory urging Chinese and Hong Kong citizens to avoid travel to Japan. Notably, aviation food volumes are expected to see stronger growth from FY27F as the group ramps up frozen meal production at its Thailand facility.
Strong conviction in SATS bucking a downturn in the air cargo industry in 2026. We remain confident that SATS can sustain cargo tonnage growth in FY27F (2026) even as global merchandise trade is projected to soften. Our conviction is underpinned by several factors:
- SATS has consistently outpaced the broader market in cargo tonnage growth for eight straight quarters, reflecting an expanding customer base, network integration and ability to capture high-value cargo flows. While the degree of outperformance may narrow over time, we still expect SATS to grow ahead of the sector.
- The US total business inventory-to-sales ratio has stayed broadly stable through 2025 despite concerns that front-loading could lead to stockpiling. Some inventory may be temporarily sitting in bonded warehouses and foreign trade zones, but the stable ratio suggests inventories remain manageable and the risk of a large destocking cycle in the US is limited.
- Tariff rates could be revised lower as more trade agreements are concluded, supported by the recent progress in US–China negotiations, which may help ease pressure on global trade.
- Technology and AI-related goods continue to underpin global air cargo demand, and we expect this segment to stay robust given an expected surge in AI-related capex projected in the US over the next few years.
Maintain BUY with a slightly higher TP of SGD4.0 as we roll forward our valuation peg. We continue to like the risk/reward at this juncture, and would argue that most downside risks are already priced in, with the stock trading at just 17x forward P/E, more than 2 standard deviations below its pre-pandemic trading band despite our projection for 13% EPS growth over FY25-28F. SATS is also trading at a notable discount to other Singapore aviation names, which offer similar/slightly higher growth trajectories but sit comfortably in the 20s on a forward P/E basis.
Key quarterly P&L figures and operating metrics
| Group P&L | |||||||
1Q25 | 2Q25 | 3Q25 | 4Q25 | 1Q26 | 2Q26 | y/y | |
| Revenue | 1,370.4 | 1,450.7 | 1,523.3 | 1,476.7 | 1,506.3 | 1,572.1 | 8.4% |
| EBIT | 112.9 | 127.2 | 127.3 | 108.3 | 125.2 | 157.4 | 23.7% |
| Operating margin | 8.2% | 8.8% | 8.4% | 7.3% | 8.3% | 10.0% | 124bps |
| Share of profits from associates and JVs | 28.4 | 29.7 | 27.6 | 21.4 | 33.0 | 27.5 | -7.4% |
| Headline net profit | 65.0 | 69.7 | 70.4 | 38.7 | 70.9 | 78.9 | 13.2% |
| Core net profit | 59.1 | 91.3 | 65.3 | 44.4 | 70.9 | 78.9 | -13.6% |
| Free cash flow after leases | 45.0 | (97.8) | 125.9 | 155.2 | (4.5) | 3.4 | -103.5% |
SATS Food Solutions | |||||||
1Q25 | 2Q25 | 3Q25 | 4Q25 | 1Q26 | 2Q26 | y/y | |
| Non-aviation revenue | 94.9 | 114.5 | 121.7 | 102.1 | 94.7 | 117.1 | 2.3% |
| Aviation revenue | 215.9 | 238.3 | 235.0 | 229.0 | 233.6 | 239.4 | 0.5% |
| Total revenue | 310.8 | 352.8 | 356.7 | 331.1 | 328.3 | 356.5 | 1.0% |
| Operating profit | 24.5 | 41.0 | 28.5 | 27.4 | 28.5 | 38.2 | -6.8% |
| Operating profit margin | 7.9% | 11.6% | 8.0% | 8.3% | 8.7% | 10.7% | -91bps |
SATS + WFS Gateway Services | |||||||
1Q25 | 2Q25 | 3Q25 | 4Q25 | 1Q26 | 2Q26 | y/y | |
| Cargo handling revenue | 695.3 | 710.0 | 771.4 | 745.9 | 780.4 | 811.6 | 14.3% |
| Ground handling revenue | 364.2 | 387.8 | 395.2 | 399.6 | 397.6 | 404.0 | 4.2% |
| Total revenue | 1,059.5 | 1,097.8 | 1,166.6 | 1,145.5 | 1,178.0 | 1,215.6 | 10.7% |
| Operating profit | 81.2 | 108.0 | 112.6 | 65.2 | 101.9 | 132.2 | 22.4% |
| Operating profit margin | 7.7% | 9.8% | 9.7% | 5.7% | 8.7% | 10.9% | 104bps |
Key operating metrics (SATS) | |||||||
1Q25 | 2Q25 | 3Q25 | 4Q25 | 1Q26 | 2Q26 | y/y | |
| Flights Handled ('000) | 79.0 | 82.8 | 85.1 | 84.3 | 87.7 | 88.7 | 7.1% |
| Cargo ('000 tonnes) | 660.6 | 678.4 | 703.3 | 661.0 | 704.0 | 726.0 | 7.0% |
| Aviation meals (mn) | 15.2 | 17.1 | 16.3 | 16.4 | 16.4 | 17.6 | 2.9% |
| Non-aviation meals (mn) | 10.9 | 11.5 | 9.8 | 9.8 | 9.7 | 11.7 | 1.7% |
| Aviation food ASP (SGD per meal) | 14.2 | 13.9 | 14.4 | 14.0 | 14.2 | 13.6 | -2.4% |
| Non-aviation food ASP (SGD per meal) | 8.7 | 10.0 | 12.4 | 10.4 | 9.8 | 10.0 | 0.5% |
Key operating metrics (WFS) | |||||||
1Q25 | 2Q25 | 3Q25 | 4Q25 | 1Q26 | 2Q26 | y/y | |
| Flights Handled ('000) | 75.9 | 78.0 | 76.2 | 73.5 | 71.1 | 71.9 | -7.8% |
| Cargo ('000 tonnes) | 1,494.5 | 1,544.8 | 1,671.5 | 1,612.7 | 1,675.3 | 1,675.3 | 8.4% |
Key operating metrics (Group) | |||||||
1Q25 | 2Q25 | 3Q25 | 4Q25 | 1Q26 | 2Q26 | y/y | |
| Ground handling yield (revenue per flight) | 2,351.2 | 2,411.7 | 2,450.1 | 2,532.3 | 2,503.8 | 2,515.6 | 4.3% |
| Cargo handling yield (revenue per ton) | 322.6 | 319.4 | 324.8 | 328.1 | 328.0 | 338.0 | 5.8% |
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