What You Need To Know About SATS Limited Now

SATS Limited (SGX:S58) is the leading provider of gateway services and food solutions to the aviation sector, and hospitality, food, healthcare, freight, logistics and government sectors. Its 2 business segments include the following:

-Food Solutions comprises airline catering, food distribution, industrial catering and frozen food manufacturing

-Gateway Services include a full spectrum of air and cruise travelling services such as airfreight, baggage handling, passenger services, security, warehousing and terminal management

Its network covers various key airports in Asia such as Singapore, Beijing, Tokyo, Delhi and Jakarta.

Being the dominant gateway services provider in Changi Airport and to the various airlines plying their routes here, its earnings results provide important clues to the health and growth of Changi Airport, a vital asset of Singapore aviation sector.

With its 2Q FY17/18 results hot from the oven, let us see how has it performed in the past quarter.

Operating Statistics

Source: SATS 2Q FY17/18 Earnings Presentation

The operating statistics show a broad-based growth across all the fields. Passengers and flights handled both increased by 3.1% and 1.7% respectively. This is in-line with the growth in Changi Airport’s passenger numbers. Correspondingly, Gross Meals Produced also increased.

A number of Ship Calls Handled jumped by 50%, although it increased from a small base.

Profit and Loss

Source: SATS 2Q FY17/18 Earnings Presentation

In 2Q 17/18, group revenue maintained at $434.8 million, with a slight drop of 0.8%. Coupled with the increased expenditure of 0.3% to $343 million mainly due to higher licensing fees and reduction of Changi Airport incentives, this caused operating profit to fall by 3.9% to $61.1 million.

Taking Operating Margin divided by Revenue, we get Operating Profit Margin, a measure of company’s profit-generating efficiency based on its core operations. For Q2, SATS Ops Margin came in at 14%, a slight drop of 14.5% from last year.

However, the bright spot lies with the increased ‘Share of Results from Associates and Joint Ventures’. Associates and JVs earnings grew 56% to $18m with the high contribution from both Gateway Services and Food Solutions. On a half-yearly basis, the earnings grew 41% to $33m. This has actually cushioned the stagnant top-line figures.

PATMI grew 16% to $72m. Should we want to find out the true profit due to shareholders, excluding one-off item such as asset disposal, Underlying Net Profit would meet such purpose – an increase of 5% to $65.2m.

Financial Indicators

Source: SATS 2Q FY17/18 Earnings Presentation

As mentioned earlier, SATS Operating Margin maintained at 14%.

Its PATMI and Underlying Net Margin both improved by 2.4% and 0.8%. 2Q Return on Equity, improved by 0.4%. EPS grew 16% to 6.5c per share.

While the quarterly numbers show slight improvement, do note that on a half-yearly basis, the indicators actually did not improve much.

On the plus side, SATS continues to have a strong balance sheet with Debt/Equity ratio of just 0.07.

Segment Revenue

Source: SATS 2Q FY17/18 Earnings Presentation

Food Solutions segment revenue fell 3%, while Gateway Services grew 2.3% in Q2. Both balance out each other to give rise to a revenue that remains same as last years.

Non-aviation industry such as cruise terminals and industry food catering grew by 7.7%.

However, do note that Japan market suffered a 13.2% drop in revenue. On a half-year basis, it dropped 12.2%. According to CIMB analyst report, its Japanese subsidiary, TFK Corporation, is facing challenges as more airlines are cutting routes to/from Narita Airport where SATS operates or moving to Haneda. This certainly has an impact on SATS as Japan is currently its second biggest market.

Associates and Joint Ventures (JV) Performance

While SATS is the dominant player in Singapore aviation, the limited growth and a competitive industry landscape mean that SATS has to venture overseas to grow its top line via acquisitions or forming JVs. As seen from above, results from associates and JVs have shown strong growth, it would still be worth looking into the details to see where the improvements occur.

Source: SATS 2Q FY17/18 Earnings Presentation

As disclosed in the latest quarter report, both segments grew its PAT by a large margin over last year. On a half-yearly basis, Food Solutions grew by 78% while Gateway Services showed a 32% jump in their respective PAT. It is a good sign that both segments performed well in the past quarter.


Lastly, Net Cashflow from Operations stood at $90m, a slight drop from $105m last year. Should SATS maintain a similar level of operations cash flow in the next 2 quarters, it would have no issue paying the same level of dividends as last year that amounted to $178m.


There are 2 major challenges cited by management: global economic uncertainty and competitive industry.

The global economic situation has a close correlation with the fate of aviation industry. An expanding economy usually means more business and trading activities with increasing movement of goods, cargoes and people travelling due to growing income. Conversely, a bad economy would mean the reverse and reduce SATS revenue.

SATS, being a service provider to airlines, would mean that they are more of a price-taker instead of a price-setter, subjected to the fluctuation of the market rate of the services they provide. Airlines would tend to negotiate for lower rates to improve their performance. Coupled with the presence of another service provider, this creates a competitive industry.

To this end, SATS has been proactive in growing their business, by leveraging on technology to raise productivity level of their staff. We can see an increased use of self-service check-ins and security checks at Changi Airport, especially the Terminal 4. Behind public’s view, technology is also deployed to raise efficiency in goods, cargoes and baggage processing.

SATS is also entering new markets via JVs and partnerships with other airports and airlines. Recently, it signed a memorandum of understanding to be the exclusive caterer to Turkish Airline at the new Istanbul Airport. It has also formed a partnership with AirAsia, giving it access to ground handling operations in Malaysia’s main airports including KL, Penang, Kuching and Kota Kinabalu, as well as AirAsia’s expanding flight routes in Asia.

It pays to monitor SATS results closely in next few years as the JVs and productivity initiatives bear fruits.

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