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SATS Locks In Lower Revenue Despite Higher Gateway Revenue
Tradeable, Tradeable Ideas | 23 May 2014
Related stocks:
S58
By: Lim Si Jie
Articles (169) Profile
  1. Operating landscape remains challenging in view of rising costs and ongoing pressure on regional aviation.
  2. SATS has been sustaining its revenue and net income at a consistent level despite tougher market conditions.
  3. SATS continues to keep to its consistent dividend policy.

SATS Company Profile

SATS Ltd. is the main ground-handling and in-flight catering service provider at Singapore Changi Airport. SATS operations consist of two main components:

1. SATS Food Solution

SATS Food Solution provides airline catering, food distribution and logistics, industrial catering as well as chilled and frozen food manufacturing, besides linen and laundry services.

2. SATS Gateway

SATS Gateway offers a full spectrum of customised gateway services from airfreight, baggage, ramp handling, passenger services, aviation security, cargo, warehousing, perishables handling to cruise handling and terminal management.

SATS controls about 80 percent of Changi airport’s ground handling and catering business. SATS also provides ground handling and in-flight catering in more than 30 airports in Asia.

SATS FY 13/14 Results

The performance of SATS Ltd is heavily linked to the aviation industry. Operating landscape remains challenging in view of rising costs and ongoing pressure on regional aviation. Moderate growth in passenger traffic and marginal growth in airfreight is to be expected in the upcoming year. Given the gloomy outlook on the aviation industry, SATS isn’t’ likely to escape unscathed. Let us take a look at the SATS FY 13/14.


Source: SATS Ltd Investor Relations

SATS revenue declined by 1.8 percent in comparison to the previous financial year. SATS attributed this to lower food revenue despite higher gateway revenue. In addition, operating profit fell by 11.1 percent due to rising manpower costs and lower revenue. Manpower costs and lower revenues will continue to bug SATS in view of rising costs and pressure on the aviation industry.

All May Not Be Lost

Source: FT.com
Despite pressure on the aviation industry in recent years, SATS has been able to sustain its revenue as well as net income. SATS does not possess the increasing rate of growth that aggressive investors want to see. But to be able to keep its revenue and net income consistent is a sign of confidence for the passive investor.

Source: FactSet
Analysts’ recommendations also signal towards a slightly bullish outlook on SATS. Most Analysts are recommending either a hold or buy call.

Consistent Dividend Policy

Source: FT.com
One thing which I like about SATS is their dividend policy. Although they did not do exceptionally well in recent years, they continued to stick to their dividend policy and pay out dividends to their shareholders. SATS will be proposing a final ordinary dividend of 8 cents per share to bringing FY 13/14 Dividend Per Share to 13 cents. This translates to a payout ratio of 80.8 percent.

Pulling Out From Singapore Cruise Centre Deal

SATS has pulled out from acquiring Singapore Cruise Centre from investment company Temasek Holdings. The move to buy Singapore Cruise Centre was aimed at riding the waves of the growing cruise industry in the Asia-Pacific region. Some analysts feel that the prospects of the cruise industry in Singapore remains rather limited.

The non-completion of the acquisition is not expected to have a material financial impact on SATS. However, share prices seem to have taken a slight pullback from this announcement, halting the uptrend since mid-april. SATS’s share price fell by close to three percent on 22nd May.

#Bullish But Only For Investors Looking For Safety Over Capital Gains

For investors looking for exponential gains, I wouldn’t be expecting SATS to provided that capital gains that you are looking for. However, for the passive investors, you might want to take a look at SATS for its consistent dividend policy and consistent results.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

SATS  5.140 +0.05 +0.98%   
Business: Asia's leading provider of gateway services and food solutions. [FY19 Turnover] Food solutions (54.1%), gateway svcs (45.8%), others (0.1%).

Insight: May-19, FY19 revenue rose 6% to $1.8b driven by hi... Read More


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