Phillip Securities upgrades Sats to ‘buy’; sees no material impact from Iran war

[SINGAPORE] Phillip Securities upgraded its call for Sats to “buy” and raised its target price by 15.6 per cent to S$4.44 – even as the Iran war destabilises global trade and poses near-term risks for the ground handler and in-flight caterer.

The brokerage on Wednesday (Mar 4) raised its FY2026 earnings forecast for Sats, despite the escalating conflict in the Middle East between Iran, the US and Israel, which has led to a shutdown of the Strait of Hormuz, disrupting shipping routes and trade flows.

While cargo yields may tighten following escalation of the Middle East conflict, Phillip Securities research analyst Hashim Osman highlighted that overall cargo trends “remain resilient with strong demand for high-value, time-sensitive shipments such as semiconductors in Asia-Pacific”.

“We do not expect material impact from the conflict on Sats operations given that the customers’ relationship is network-based globally,” Osman said, while acknowledging that cargo demand is expected to moderate in Q4, which is traditionally the weakest quarter for Sats.

Given that cargo rates have been incrementally raised amid tightening cargo capacity in the Middle East, and as cargo volumes are expected to grow FY2026, Phillip Securities has raised its FY2026 profit after tax and minority interests forecast for Sats by 13 per cent.

Similarly, CGS International (CGSI) believes that Sats’ earnings growth will continue to be supported by market share gains in air cargo, even though the ground handler could be affected by supply chain disruptions, as the Iran war poses near-term uncertainty to global trade.

“We remain constructive despite short-term cost concerns from the Iran conflict, as we believe Sats is positioned for growth in the longer-term,” CGSI analysts Tay Wee Kuang and Lim Siew Khee said on Tuesday.

The investment house reiterated its “add” call on Sats, with its S$4.53 target price unchanged.

Near-term disruption, higher air freight demand

The closure of the airspace around Doha – a key transhipment hub for cargo between Asia Pacific and Europe – could disrupt supply chains, especially for time-sensitive cargo, said CGSI, citing Sats’ management.

“This (would lead to) cargo bound for, or through the Middle East, (being) unable to enter the market, which would result in an inventory build-up in the warehouses of source markets.”

“This can have knock-on effects for Sats warehouse, as it may be required to employ more manpower to manage warehouses in the meantime, although management shared that some of these higher costs are passed on to customers through storage fees,” said CGSI.

Closure of the Strait of Hormuz could lead to a temporary spike in freight rates for air cargo that is re-routed to alternative routes, it added.

“While Sats would not benefit from higher freight rates as it charges cargo-handling services on a fee-per-tonnage basis, we could see demand for air freight increase in the short-term, which could benefit Sats if cargo volumes pass through its cargo network,” CGSI said.

Contract wins, capex initiatives

The commencement of new contract wins, alongside further leasing and capital expenditure initiatives, are also set to underpin growth, Phillip Securities said.

Contract wins such as with China Cargo in Paris and Saudia Cargo in the Americas are set to drive cargo volume growth, the brokerage said.

It added that Sats is “well positioned to handle incremental cargo volumes as new contracts commence”, given the ground handler’s ongoing infrastructure expansion works.

“In the near term, as new facilities such as the expanded Pathum Thani kitchen and Noida airport cargo facility ramp up, we expect both facilities to become profitable in the coming quarters,” the brokerage said.