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SATS’ Share Price is Hovering Near a 52-Week Low: Is it Time to Buy?

·5-min read
Airplane Meal
Airplane Meal

With borders around the world reopening, you may be thinking of taking a short vacation.

Just this week, I learnt of two friends who are flying to Europe for a holiday – I am sure my experience is not unique.

Pent-up demand over the last two years has led many to splurge on a nice holiday, adding to the burgeoning number of passengers hopping onto aeroplanes.

Singapore Airlines Limited (SGX: C6L), or SIA, Singapore’s flagship carrier, has seen a strong surge in passengers from close to 120,000 in May last year, to more than 1.7 million two months ago.

Despite the strong numbers, sister company SATS Ltd’s (SGX: S58) share price continues to hover close to its 52-week low of S$3.76, closing at S$3.95 recently.

Could investors be staring at a juicy opportunity to scoop up shares of the ground handler cum food caterer on the cheap?

Stronger financial numbers

The group recently reported a better set of financial numbers for its fiscal 2022 (FY2022) ended 31 March 2022.

Revenue rose from S$970 million to S$1.18 billion, up 21.3% year on year, with both its divisions seeing year on year revenue increases.

In particular, Gateway Services’ revenue jumped by 36.6% year on year to S$532.5 million due to the growth in cargo, resumption of ship calls, and the expansion of security services into non-travel-related segments.

Despite the topline growth, higher fuel costs, along with lower government grants, pushed SATS into an operating loss of S$42.6 million for FY2022.

On the other end, share of profits from its associates along with positive non-operating gains lifted the group’s net profit back to S$20.4 million, reversing the loss of S$78.9 million last year.

Better operating numbers

SATS’ operating numbers also point to better days ahead.

Flights handled for FY2022 surged 73.3% year on year to 95,500.

With April and May seeing an increased number of passengers on SIA’s flights, this figure looks certain to rise further in the coming quarters.

Meals served and passengers carried should also increase in tandem, after experiencing a 20% and 169% year on year gain, respectively, for FY2022.

On the cargo side, SATS is also seeing improved numbers, with 1.68 million tonnes carried, up 45.2% year on year.

During its Capital Markets Day last year, the group signalled that it intends to reduce its reliance on travel-related revenue.

The plan is for non-travel-related revenue to comprise 60% or more of group revenue by 2025.

SATS intends to expand its food solutions’ reach and build an integrated value chain from farm to fork.

At the same time, the airline food caterer will deepen its operations in existing territories and push into new markets to distribute its products.

Changes are afoot

There’s also been a change in the top seat at SATS since January this year.

Last October, the group stunned the market when it announced that veteran CEO Alex Hungate will be leaving after eight years to join Grab Holdings (NASDAQ: GRAB) as its new COO.

Kerry Mok, who joined SATS in 2018 as its CEO of Food Solutions, took up the group CEO role.

Since then, the group has invested in a S$150 million advanced manufacturing food hub in the Jurong Innovation District, signalling its commitment to growing its Food Services division.

Mr Mok believes that the focus on both travel and non-travel food will create a more resilient business for SATS.

In turn, this new direction should buffer the business against future challenges that adversely impact the aviation industry.

SATS will also focus on food innovation and alternative proteins as consumers are now demanding more environmentally-friendly food products.

Aside from the Singapore food hub, central kitchens are also opening in Thailand, India, and China.

Once all these pillars are in place, SATS has plans to venture into Europe for further expansion.

Get Smart: Clearer skies ahead

The clouds have lifted and the skies seem much clearer now for SATS.

New CEO Kerry Mok’s expertise is in food solutions, which is the new direction that the group is taking to reduce reliance on aviation-related revenue.

Coupled with an overall increase in the number of flights and passengers, SATS should enjoy higher cargo volumes and see more meals supplied.

Its central kitchens will also supply meals to non-travel-related segments such as restaurants and food chains, helping it to further diversify its revenue sources.

All in all, investors can expect better numbers from SATS in FY2023.

SATS is not quite out of the woods yet, so patience is needed before it can resume the payment of dividends.

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

The post SATS’ Share Price is Hovering Near a 52-Week Low: Is it Time to Buy? appeared first on The Smart Investor.