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AnalysisSGX

5 things I learned from the 2022 SATS AGM

SATS Ltd is an investment holding company listed on the SGX under the ticker code S58. The company was founded in 1972 and is headquartered in Singapore. SATS provides gateway and food services in Asia. Its subsidiaries include SATS Airport Services, SATS Catering, SATS Security Services, Aero Laundry & Linen Services, Aerolog Express, Country Foods, and Singapore Food Industries.

SATS is the main ground handling and in-flight catering service provider at Singapore Changi Airport. It controls about 80% of Changi Airport’s ground handling and catering business. 

The business is primarily segmented into the following three areas.

  • SATS food services: Comprises airline catering, food distribution and logistics, industrial catering, and linen and laundry services. 
  • Gateway services: Its gateway services span airfreight, baggage and ramp handling, passenger services, aviation security, cargo, warehousing, perishables handling to cruise handling and terminal management.
  • Others: This segment comprises rental of premises and other services.

At its recent AGM, I was able to learn how SATS is recovering from the pandemic and aims to expand moving forward. Here are five things I learned from the 2022 SATS annual general meeting.

1. SATS reported an encouraging set of financial results amid a relatively volatile FY21/22. Revenue for FY21/22 jumped 21.3% year-on-year to S$1,176.8 million. The increase was mainly attributable to the increase in passenger travel at Changi Airport as the government removed the COVID-19 restrictions on international travel since the last two quarters. Although the jump in revenue was significant, it is still well below pre-pandemic levels. Looking forward, FY22/23 will track closer to pre-pandemic levels and early indicative numbers are looking encouraging.

EBITDA increased from S$72.3 million to S$94.2 million. With the improvement in air travel from the post pandemic boom, EBITDA is expected to improve significantly in FY22/23. Cash reserves remain strong at S$786.0 million. The management team had raised additional liquidity from the market to strengthen the balance sheet during the pandemic. Free cash flow fell to negative S$15.6 million in FY21/22, from 56.2 million the year before. This was primarily due to capex investments in growth initiatives and a reduction in government funded COVID-19 reliefs.

2. SATS is enhancing its core capabilities to achieve sustainable excellence across its network of operations. As an example, the company invested in a large-scale food production factory in Thailand which provides greater operational efficiency to serve more customers within SATS’ network. 

3. SATS is also currently focused on driving additional growth in key markets overseas. There are two new central kitchens that will be coming up in India and China. SATS India is expected to be operational in the first quarter of next year. This will be the largest central kitchen of its kind in India, and it will give the company a significant advantage to serve both aviation and non-aviation markets. The new central kitchen in Tianjin, China is expected to provide the company the ability to reach out to a larger group of customers in China. 

As for gateway services, SATS expanded its capabilities in Saudi Arabia. SATS is the country’s first international cargo handler, operating a cargo terminal at Dammam’s King Fahd International Airport (KFIA) with a dedicated cold chain facility and the capacity to handle 150,000 tonnes of cargo annually. This is followed by the SATS Cargo Terminal at King Khalid International Airport (KKIA) in Riyadh, which is designed to handle 300,000 tonnes of cargo annually. Saudi Arabia is expected to be the leading aviation hub in the Middle East providing significant growth in terms of logistics and cargo flow. 

4. SATS is also looking to diversify its revenue streams. It has opened two restaurant outlets (at Raffles Place and Asia Square) called Twyst. The restaurants have been gaining good traction, attracting a crowd looking to try new pasta recipes and flavours. SATS has also launched ready-to-eat meals under the brand The Travelling Spoon. These ready-to-eat meals are targeted at the mass retail markets and is available through 7-Eleven stores.

On the gateway side, SATS increased its stake in Asia Airfreight Terminal to 65.4%. AAT is one of three cargo terminal operators in Hong Kong, the largest air cargo market in the world.

5. On the ESG front, SATS is looking to switch all of its ground support equipment to electric variants by 2030. The company also intends to reduce its carbon footprint 50% from its FY19/20 baseline by 2030. On the food side, the company aims to reduce food and packaging waste in Singapore by 50% from the 2021 baseline numbers by 2028 or earlier. In addition, SATS intends to introduce 100% sustainable food packaging by 2030. 

The fifth perspective 

Post-pandemic passenger traffic in Singapore is returning faster than expected but still lags other regions. According to the IATA projections, global air passenger traffic will reach 83% of pre-pandemic levels this year, while global cargo volumes are expected to set a record high of 68.4 million tonnes in 2022.

The COVID-19 pandemic brought the aviation industry to its knees and SATS was affected badly. However, the industry as a whole is now seeing a recovery, which is reflected in SATS’ improving financial performance. Looking forward, SATS can be seen as a recovery play albeit facing a challenging macroeconomics outlook.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Teh Weiyang

Weiyang is an aspiring analyst in the fields of investment banking and private equity. Putting his money where his mouth is has inadvertently led him to learn extensively about risk management, asset allocation and fundamental valuation methodologies. He is currently a Private Equity Analyst intern at SME Ventures and also a Macroeconomics Analyst for Victoria Investment Fund. On the academic front, he is pursuing a business degree at the National University of Singapore with double majors in Finance and Quantitative Finance.

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