HomeCase Study8 Things You Need to Know about SATS Limited Before Investing
8 Things You Need to Know about SATS Limited Before Investing
August 25, 2022
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.
Ticker Symbol: S58
Market Cap: $4.46B
Industry: Airports and Air Services
SATS operates through 2 main segments: Food Solutions and Gateway Services.
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.
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.
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.
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.
As of July 23rd 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.
T: (65) 6541 8200
Financial Reports, Presentation Slides, Other Investor Relations Material: https://www.sats.com.sg/investors/financial-reports
Ryle is a third year college student at San Beda College Alabang. He started investing in early 2018 after discovering the ways of value investing. Since then, he has been outperforming his home market of the Philippines and has recently started applying a value investing strategy to the Australian market; also looking for fundamentally strong stocks and to buy at good prices. After finishing school, he seeks to be a life-long learner and focus his career on Asian stocks because he believes that going forward, there would be better opportunities in Asian markets than in Western markets. His favorite investors are Cheah Cheng Hye from the Value Partners Group, Jean-Marie Eveillard from First Eagle Funds, and Richard Lawrence Jr. from Overlook Investments. Ryle can be reached through this website, his LinkedIn profile, or his email address at email@example.com.