Listed in May 2000, SATS Ltd is a leading provider of gateway services and food solutions to the aviation industry in Asia. Headquartered in Singapore, SATS Ltd has built its presence in over 60 locations in 13 nations across Asia. Presently, it is one of the largest listed companies in Singapore with market capitalization of S$ 5.41 billion as at 22 January 2019.

In this article, I’ll bring an update on its latest financial results and would assess its investment potential at its current stock price of S$ 4.84 a share, a 17% drop from S$ 5.82 a share one year ago.

Source: Google Finance

Thus, here are 10 things to know about SATS Ltd before you invest.


  1. Food Solutions
    In 2018, revenues had dipped by 2.7% year-on-year to S$ 946.6 million, down from S$ 973.3 million in 2017. Hence, it continued on its ongoing fall since 2013 when it recorded S$ 1.16 billion in segmental revenue. It is despite producing more meals for the last 5 years. The fall in revenue was due to price pressures during the period.



Source: Annual Reports of SATS Ltd


  1. Gateway Services
    In 2018, revenues had grown by 2.9% year-on-year to S$ 776.5 million, up from S$ 754.6 million in 2017. Apparently, this segment is the main growth driver for SATS Ltd as it has recorded consistent growth in sales over the last 10 years. It is attributed to its forging of new partnerships and increase in network of airports under its client base.



Source: Annual Reports of SATS Ltd


  1. Group Revenue
    Hence, SATS Ltd has maintained its group revenues at S$ 1.72 billion in 2018. It is an insignificant change from S$ 1.73 billion in 2017. Over the past 10 years, SATS Ltd’s sales decline for its food solution divisions has been offsetted by its sales growth in gateway solutions division. Hence, SATS Ltd’s revenue was maintained at S$ 1.7 billion levels since 2012.



Source: Annual Reports of SATS Ltd


  1. Associates & Joint Ventures
    As at 31 March 2018, SATS Ltd’s interests in associate companies have been valued at S$ 604.1 million. The main companies include:

    – 49.8% shareholdings of PT Jasa Angkasa Semesta Tbk (PT Jas)
    – 45.0% shareholdings of Asia Airfreight Terminal Company Ltd (AAT)
    – 41.7% shareholdings of PT Cardig Aero Services Tbk (PT Cas)
    – 25.0% shareholdings of Evergreen Sky Catering Corporation (ESCC)


    Also, SATS Ltd’s interests in joint venture companies were valued at S$ 244.7 million. The main companies include:

    – 50.0% shareholdings of Air India SATS Airport Services Pte Ltd
    – 51.0% shareholdings of SATS BRF Food Pte Ltd
    – 50.0% shareholdings of Ground Team Red Holding Sdn Bhd


    Profits from associates & joint ventures grown by 9.1% year-on-year to S$ 71.2 million in 2018, up from S$ 65.2 million. It is a continuation of a string of positive results from its associate companies which include PT Jas, AAT, and PT Cas during the period.



Source: Annual Reports of SATS Ltd


  1. Group Profitability
    Shareholders’ earnings had increased by 1.4% year-on-year to S$ 261.5 million in 2018, up from S$ 257.9 million in 2017. It is a continuation of rising shareholders’ earnings for the last 10 years. This is due to several key factors such as improvements in profit margin due to lower cost of raw materials and increasing profits from its associates & joint venture companies during the period.

    SATS Ltd has a 10-Year Return on Equity (ROE) of 13.41% per annum. It means, SATS Ltd has generated, on average, S$ 13.41 in earnings a year from every S$ 100.00 in shareholders’ equity from 2009 to 2018.


Source: Annual Reports of SATS Ltd


  1. Cash Flow
    From 2009 to 2018, SATS Ltd has generated S$ 2.36 billion in operating cash flows and received S$ 346.2 million in dividends from associates & joint venture companies. Out of which, it has spent:

    – S$ 619.4 million in capital expenditures.
    – S$ 397.3 million in net acquisition of associate & joint ventures.
    – S$ 158.8 million in net repayment of long-term borrowings.
    – S$ 1.73 billion in dividends to its shareholders.


Source: Annual Reports of SATS


Evidently, SATS Ltd is a cash-generating business and has been efficient in investing its cash flow received for higher profits in the future.


  1. Balance Sheet Strength
    As at 30 September 2018, SATS Ltd has long-term borrowings worth S$ 176.9 million and shareholders’ equity of S$ 1.61 billion. Therefore, its gearing ratio is 11.0%. It has a current ratio of 1.79 where SATS Ltd has a cash balance of S$ 281.7 million.


  2. P/E Ratio
    For the last 12 months, SATS Ltd has made S$ 261.6 million in earnings or 23.5 cents in earnings per share (EPS). At current price of S$ 4.84, it has a current P/E Ratio of 20.60. It is comparable to P/E Ratio levels in 2016 – 2018.



Figures in S$ Million unless stated otherwise

PeriodQ3 2018Q4 2018Q1 2019Q2 2019Total
Revenue439.8423.5439.4453.11,755.8
Earnings66.665.463.965.7261.6
EPS (Cents)6.05.95.75.923.5


Source: Quarterly Reports of SATS Ltd.

  1. P/B Ratio
    As at 30 September 2018, SATS Ltd has reported net assets of S$ 1.44 a share. Hence, its current P/B Ratio is 3.36, which is at levels achieved in 2016 – 2018.


  1. Dividend Yield
    For financial year (FY) 2018, SATS Ltd has paid out 18 cents in dividends per share (DPS). Hence, its dividend yield is 3.72%. It is below its 5-Year average of 3.90% per annum.


VIA Verdicts

Overall, SATS Ltd has delivered slow but sustainable increase in earnings and as well as dividends to its shareholders for the last 10 years. Moving ahead, future growth would arise from:

  1. C2+
    It is a kitchen extension at SATS Inflight Catering Centre where it began its operation in February 2018. It has added 10% more capacity to SATS Ltd’s current meal production in Singapore.


  2. Changi Terminal 4
    It has added more capacity to Changi Airport, thus, presenting multiple growth opportunities for food solution and gateway solution division in the future.

Question:

‘If SATS Ltd has delivered results, why then, its stock price fell in 2018?’

Answer:

From a longer perspective, SATS Ltd has experienced long-term growth in stock prices. It went up by 301%, from S$ 1.28 in 2009 to S$ 5.13 in 2018.




Source: Google Finance

But, did SATS Ltd’s profits and dividends grew by 300% over the past 10 years? The answer is Nope. As such, it caused SATS Ltd’s stock price to be increasingly unattractive in terms of its valuation figures.

So, should I buy SATS Ltd now at S$ 4.84?

That, I’ll leave you to answer. Happy Investing!

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