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SATS Announced an Upbeat Business Update Along with an Acquisition: Can its Share Price Soar?

SATS
SATS

SATS Ltd (SGX: S58) is upping its game.

Not only did the airline ground handler and food caterer report a sparkling set of numbers for its latest business update, but management also followed up with an acquisition and divestment.

The sharp recovery in air travel and tourism is boosting SATS’ business.

However, its share price has continued to languish, falling by 7.3% year to date to S$2.55.

With the blue-chip group’s change in fortunes and recent acquisition, can investors look forward to a rebound this year?

A healthy set of financial numbers

SATS reported a strong set of financial numbers for the first nine months of fiscal 2024 (9M FY2024) ending 31 December 2023, in line with the robust growth in air travel.

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Revenue for 9M FY2024 tripled year on year from S$1.3 billion to S$3.8 billion with the ground handler reporting an operating profit of S$161.5 million, reversing the operating loss of S$43.4 million a year ago.

Its share of profits from associates and joint ventures also soared more than two-fold year on year to S$79 million.

SATS’ core net profit ended at S$31.2 million for 9M FY2024, a far cry from the small core net loss of S$3.7 million a year ago.

Robust operating metrics

Accompanying the improved financial profile were stronger operating metrics for the airline food caterer.

SATS saw flights handled for 9M FY2024 more than double year on year from 164,000 to 450,200.

The number of meals served jumped from 49.1 million to 71.1 million while passengers handled increased from 37.1 million to 58.8 million.

SATS’ cargo tonnage more than tripled year on year from 1.7 million to 5.8 million, reflecting the sharply higher volumes in tandem with stronger demand for e-commerce deliveries.

Acquiring capacity to grow further

SATS is not sitting still, though.

Just last week, the group announced the proposed acquisition of Swedish companies Terminal & Transporttjänst i Sigtuna AB (TT) and APH Logistics AB (APH) for approximately S$12.1 million.

The acquisition was conducted by its wholly-owned subsidiary WFS Sweden AB which was acquired back in April 2023.

Both TT and APH operate out of Sweden’s largest airport Stockholm Arlanda.

TT provides cargo handling and transportation services to airlines and freight forwarders while APH specialises in border inspection services with perishable and cold chain facilities.

Once completed, this acquisition will provide WFS Sweden with an additional 13,000 square metres of warehouse space and air cargo handling capacity.

This additional space will allow WFS to diversify and expand its product offerings to meet customers’ changing demands.

In addition, SATS can also include new services such as Sweden’s local and EU cargo transport and border inspection points.

Effective capital recycling

SATS is not just focusing on acquisitions but also conducted a divestment to recycle its capital.

The group sold off Maytag Aircraft LLC for an enterprise value of US$46 million last week.

Maytag provides aircraft fuelling services, air terminal and ground handling services but operates on a standalone basis and is outside of SATS’ core business and competency.

The sale of Maytag is in line with the group’s goal of streamlining operations and strengthening its balance sheet.

Manfred Seah, CFO of SATS, mentioned that this divestment will help to rationalise SATS’ portfolio to allow it to focus on high-value segments to drive sustainable growth.

The group’s financial priorities include the repayment of debt, reinvestment in the business, and eventually resuming dividend payments to investors.

Get Smart: Patience is required

SATS has enjoyed a strong uplift in its financial and operating numbers with the surge in air travel and cargo demand.

Prospects look good for the ground handler as it navigates an uncertain macroeconomic environment.

With air travel expected to recover to pre-pandemic levels this year, the group could see more upside to its financial numbers.

The recent acquisition and divestment also show management’s commitment to continually improve the group’s capabilities while shedding businesses that do not add value.

Investors will need patience to wait for better numbers to flow through.

But if SATS can post healthy profits for FY2024 and reinstate its dividend, its share price could experience a sharp rebound.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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