Asked by Anonymous
Asked on 20 Mar 2019
The posts here are just opinions, so please do your own due diligence before investing!
Business Profile: The first time I really got to know SATS was through lunch at the cookhouse during my NS days. Although SATS is known for their NS meals, they also provide food solutions to airlines, other government agencies, logistics companies but also have segments in gateway services, aviation security, aviation laundry and even a cruise centre.
Financials: For their 3Q FY18/19, revenue had grown by 5.5% YOY to 464m. Operating profit had decreased slightly by 0.6% to S$65.3 million from higher expenditures, but associates and joint venture's profit after tax had increased considerably by almost 2%. Net profit attributable to shareholders thus had an increase by almost 4%. This led to an increase in PBT and overall net profit. Overall free cashflow had also increased due to higher operating cashflow generated by improved working capital conditions.
Valuation: As of today, SATS has a share price of $5.17 with a P/E ratio of 22.25. As compared to the SPDR STI ETF ratio of 11.5, SATS valuation seems rather high. The shares also seem overvalued compared to the Asian infrastructure industry average. Based on a PEG ratio of 3.2X, Simply WallStreet has also concluded that the shares seems overvalued based on forward growth rates. The current P/B ratio of more than 3X also seems to suggest overvaluation as compared to Asia infrastructure market.
Risks: The large proportion of SATS revenue belongs to aviation related activities, so a downturn in the aviation sector could result in SATS being heavily affected due to this concentration risk. Increase in operating expenditures from wages, raw materials can reduce margins considerably. With FX risk, SATS also has 14% of their revenue from Japan, and the changes in currency over the past years had led to changing revenues.
Growth Profile: Overall, it seems that SATS has quite a few growth opportunities availible. Such of these drivers include passenger and air traffic growth at Changi Terminal 4, the opening of Terminal 5 by 2030 and more positive outlook from TFK Japan. There has also been increase in demand for convenient food within this region as well as increased operations in China which can drive en more growth.
I think that Isaac has already provided an invaluable opinion and analysis on SATS currently, that their growth potential is there, and still possesses good upside in the future.
Given that SATS has a huge portion of its revenue coming from the airline industry (ground handing, baggage handling, cargo etc.) it is rather affected by the airline market. With that in mind, I think there are many news and reports out there that are extremely optimistic about the airline industry especially in the region of Asia. According to the IATA's and WATF's reports, they report strong growth within the emerging and developing economies, mostly from India, China, Vietnam, Phillippines etc. Especially for such emerging economies, their expected CAGR for number of passengers are expected to double by 2030, of about 6~7% till 2035.
As a Independent firm not exactly tied to any one airline, I think SATS is in the perfect position to expand it's influence from Singapore as a hub to it's Southeast and South Asian neighbours. And right now, it is doing just that. Of course, the beginning few years might be slower given that Joint Ventures with airlines and other airports have to made in order to penetrate their markets, but eventually with greater size and bargaining power, SATS can look to establish itself as the go to all-in-one provider for airports in terms of cargo and baggage handling + food in Asia.
Thus, I am rather bullish on SATS, though I feel that the price right now is consolidating right now due to the potential recession possiblity in the near future. If you can get SATS on the dip, that would be a fantastic place to enter a possibly hugely undervalued investment opportunity.
Not very well informed about SATS but what I do know is that they are slowly expanding into emerging markets such as China and India to penetrate the air cargo, gateway and ground handling services market. Against the backdrop of how these countries are slated to have increased air passenger and cargo traffic in the next few years, I think SATS could be a stock to watch in the near future!
A case in point is how they have a secured a joint venture partnership for its food catering services in Beijing's Daxing Airport, which will be opened late September this year. When opened, Daxing will be one of the largest in the world and will be expected to handle approximately 75 million passengers per year.
Very good segment. They provide online food catering to airplanes stationed in Changi Airport, it is not just SIA who it serves but a multitude of airlines who have onboard meal and flying off from Singapore.
The company has two other business segments which are of impressive business moat and have dam good cashflow:
i) It is one of the two SAF food cookhouse supplier. It earns a lot of revenue from supplying cookhouse food to Singapore MINDEF and does not need to pay rent for its venue
ii) It is the terminal operator to Marina Bay Cruise Centre in Singapore which operates the docking of curises in Singapore. It is the largest and there are 3-4 cruise calls on average to MBCCS. Similar operating concept to Changi Airport allowing planes to dock at Changi
Long on SATS, long term investment thesis is based on opening on T5 in 2030. Sats is already the largest local player here. The opening of T5 is basically government using taxpayers money to help it expand the size of its captive market. Coupled with the investments in technology it had put into over the years to reduce labour costs, the revenue & profit margin down the road should be robust at least