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SATS More Than Doubled its Core Net Profit for 3Q FY2024: 5 Things Investors Need to Know About its Latest Business Update

SATS
SATS

The sharp rebound in air travel and tourism has benefitted many players.

Earlier last month, Singapore Airlines Limited (SGX: C6L) reported a sparkling set of results as demand for air travel remained robust.

Now, SATS Ltd (SGX: S58) has also delivered a pleasing set of financial numbers in its latest business update for its third quarter of fiscal 2024 (3Q FY2024).

The ground handler cum food caterer served up a healthy set of financial and operating numbers as it enjoys the uplift from the surge in flights.

Here are five things investors need to know about its latest 3Q FY2024 business update.

1. A surge in core net profit with positive free cash flow

For 3Q FY2024, SATS saw revenue more than double year on year to S$1.4 billion on the back of the aviation recovery as well as the consolidation of Worldwide Flight Services (WFS).

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The group generated an operating profit of S$85.8 million for the quarter, reversing the S$1.1 million operating loss in the prior year.

SATS’ associates and joint venture (JV) companies also reported better results in line with the recovery in the aviation sector, contributing S$34.6 million in share of profits compared with just S$10.2 million a year ago.

As a result, net profit catapulted from just S$500,000 in 3Q FY2023 to S$31.5 million in 3Q FY2024.

After adjusting for one-off items, SATS’ core net profit would have more than doubled year on year from S$12.1 million to S$31.8 million.

Cash flow was healthy for the first nine months of fiscal 2024 (9M FY2024).

Operating cash flow came in at S$247.8 million, a sharp turnaround from the outflow of S$19.1 million in 9M FY2023.

The ground handler generated a positive free cash flow of S$118.1 million for 9M FY2024.

2. Lower reliance on Food Solutions

After the acquisition of WFS, SATS is now much less reliant on its Food Solutions division.

Looking back at 9M FY2023, Food Solutions made up half of SATS’ total revenue.

A year later, both aviation and non-aviation food solutions made up just 21% of the group’s total revenue, with the remaining 79% coming from gateway services.

The consolidation of WFS also helped to diversify SATS’ geographic revenue base.

Close to 80% of the group’s revenue used to come from Singapore but for 9M FY2024, Singapore made up just a third of the group’s revenue with the Americas at 37% and EMEA (Europe, Middle East and Africa) taking up a fifth.

3. Stronger operating metrics

SATS not only reported better financial numbers.

The group also saw sharp improvements in its operating metrics in tandem with the aviation recovery and the consolidation of WFS.

For 9M FY2024, the group handled 450,200 flights, up from just 164,000 in the same period last year.

Meals served increased by nearly 45% year on year to 71.1 million while the number of passengers handled leapt by almost 59% year on year to 58.8 million.

For cargo movements, SATS saw cargo tonnage more than triple year on year to 5.8 million tonnes.

However, in line with the increase in business volume, SATS also saw the number of employees triple from 16,600 in 9M FY2023 to 49,900 in 9M FY2024.

4. Encouraging business developments

The group continued to drive growth through effective business development efforts.

New commercial wins for SATS include Etihad Cargo handling which expanded to 12 stations globally and a China Airlines cargo win in Los Angeles.

There was also a strategic collaboration between Saudi Cargo and Cainiao to process cross-border e-commerce shipments at Liege efficiently.

Meanwhile, SATS also continued to strengthen its Singapore hub.

The group is supporting the Singapore Food Agency’s initiative to strengthen the country’s food security.

Along this line, it has started the construction of a Built-Up Pallet Centre for the seamless handling of export cargo lodgements.

In addition, SATS also signed a memorandum of understanding with Singapore Post Limited (SGX: S08) to set up an eCommerce Transshipment Hub.

5. A bright outlook

SATS is confident of its outlook for FY2024 and beyond.

The International Air Transport Association (IATA) expects the broader aviation industry to return to profitability in the second half of this year.

SATS should continue to benefit from the ongoing recovery in passenger and cargo volumes for the remainder of this year.

President and CEO Kerry Mok reiterated that Singapore remains a key pillar for SATS’ business and that operations at Changi Airport will be ramped up to support the continued growth of the airport.

The group also conducted a successful refinancing that will result in significant cost savings and will continue to drive profitable growth moving forward.

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

The post SATS More Than Doubled its Core Net Profit for 3Q FY2024: 5 Things Investors Need to Know About its Latest Business Update appeared first on The Smart Investor.