8 Things You Need to Know about SATS Limited Before  Investing 

SATS is Asia’s leading provider of food solutions and gateway services with over 11,300  employees serving customers in over 60 locations and 14 countries across the Asia Pacific, UK,  and the Middle East.  

Going all the way back to the beginning of commercial aviation in Singapore in 1947, SATS has  been there through much of Singapore’s development into a global business hub; with the  company now having businesses from catering to ground handling to security.  

But global travel was crippled by the pandemic but as the world slowly recovers, could SATS be  a beneficiary? In this article, we’ll look into 7 things you need to know if you’re looking to invest  in SATS.  

Stock Information 

Ticker Symbol: S58 

Market Cap: $4.46B 

Industry: Airports and Air Services 

Business Overview 

SATS operates through 2 main segments: Food Solutions and Gateway Services.

Source: https://www.sats.com.sg/investors 

Under the Food Solutions segment, one of SATS’s main segments is airline catering. The  company provides catering to both full-service and low-cost airlines, as well as catering for  events, catering to the healthcare industry, education industry, and even government agencies.  According to their website, their clients include Singapore Airlines, Qantas, and Cathay Pacific,  among others. 

For food processing, SATS has a fully owned subsidiary called Country Foods, which is  Singapore’s biggest meat importer, distributor and processor. Country Foods have more than  1,000 clients and 800 white-label and branded products. SATS also offers laundry services to  some of their customers in aviation, healthcare and hospitality. 

Under the Gateway Services segment, the company controls about 80% of the ground handling  at Changi Airport, where it does baggage handling, docking of passenger loading bridges,  aircraft interior cleaning, and maintenance for airport terminals. SATS also provides cruise  terminal services through managing and operating Marine Bay Cruise Centre. Lastly, they also  provide a range of security services to the aviation, catering, tourism, and infrastructure  industries as well as to some government establishments and are Singapore’s longest-running  auxiliary police force. 

Below are some figures from their annual report:

Source: FY2021-22 Annual Report https://www.sats.com.sg/docs/default-source/annual general-meeting/2021-2022/sats-annual-report-fy2021-22.pdf?sfvrsn=d3164404_0 

Looking at these figures helps us get an idea of the scale of SATS. They regularly handled  tonnes of cargo, millions of passengers, tens of millions of meals, and handle tens of thousands  of flights. We can also see the large improvements in the fiscal year 21/22 versus the previous  year, showing that although they pandemic isn’t completely over yet, the worst seems to be over  for SATS as far as the pandemic is concerned. 

Key Opportunities 

Recovery in demand for global travel and air cargo 

As mentioned above, global travel is on a recovery trajectory as the world recovers from  the pandemic. Singapore’s travel industry is no exception, with the country’s status as a  global business hub retained through the pandemic. Given SATS’s strong involvement  with the airline and hospitality industries, they stand to benefit strongly from this recovery  in demand. According to the International Air Transport Association (IATA), airline traffic  in 2021 was still at 41.6% of 2019 levels. This has increased from 2020’s 34.2% but is  still quite far. Though 2022 is not over yet, we can almost be certain that the more  relaxed lockdowns and gradual lifting of travel restrictions is something that would  benefit SATS.  

With the uptick in business activity also comes an increase in cargo shipped, and SATS’  ground handling segment is positioned to take advantage of this increase. 

Kitchens in other countries 

In SATS annual report, they outlined that they are investing in several kitchens around  Asia: one in Bengaluru in India which will be ready in 2023, one in Tianjin which will be  operational in the third quarter of this year, they’ve acquired a production facility in  Thailand, and have commissioned a kitchen in Malaysia to produce pastries under the  Monty’s Bakehouse brand. 

Key Risks 

Prevalence of using online platforms for business dealings 

The pandemic caused the emergence of online meeting platforms such as Zoom,  Google Meet, Microsoft Teams, and Cisco’s Webex. On top of that, many companies  have been able to conduct their businesses via work-from-home arrangements. Less  airport foot traffic could prove to be a significant risk towards SATS’ long-term future, as  both their ground handling and airline catering businesses depend strongly on the  number of visitors in Changi Airport. 

Rise of budget airlines 

As was mentioned by ValueInvestAsia contributor Ketz, the continued rise of budget  airlines could also be a risk for SATS. While this wouldn’t exactly kill their ground  handling business, it would certainly deal a big hit to this segment as many of the  customers of a low-cost carrier would travel light and carry smaller amounts of baggage,  and they are not served as much in-flight meals. Relating to this, another consequence  of more people opting to fly low-cost carriers would be the reduced usage of the airport’s  premium lounge services, which SATS is also involved in. 

Valuation 

As of July 23^rd 2022, SATS’s stock is selling at a PE of 221x. This looks very expensive but it  may not be reliable as SATS’s 2021 earnings are depressed and don’t reflect the long-term  quality of the business, especially in now that the tourism and hospitality industry in on its way to  recovery. But if we compute the PE using a “normal” year like FY2018-19, the PE ratio comes to  17.9x. As for dividends, there isn’t much to see as the company hasn’t given out dividends since  FY2019-20 period. 

Investor Relations 

T: (65) 6541 8200 

E: sats_ir@sats.com.sg

Financial Reports, Presentation Slides, Other Investor Relations Material:  https://www.sats.com.sg/investors/financial-reports 

Top Shareholders (23^rd July 2022) 

No. Name No. of shares held %*

1 VENEZIO INVESTMENTS PTE. LTD. 446,123,158 39.76

2 CITIBANK NOMINEES SINGAPORE PTE LTD 128,451,241 11.45

3 RAFFLES NOMINEES (PTE) LIMITED 95,306,749 8.49

4 DBS NOMINEES PTE LTD 82,105,741 7.32

5 HSBC (SINGAPORE) NOMINEES PTE LTD 68,770,431 6.13

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