SATS and SIA Engineering Are Seeing an Aviation Recovery: Can Their Share Prices Soar to Greater Heights?
As the saying goes – you don’t know what you’ve got till it’s gone.
The pandemic shut down borders and kept everyone cooped up at home for more than two years.
The pent-up demand for travel and holidays built up strongly over this period and exploded once the world opened up again.
Visitor arrivals in Singapore more than doubled last year as air travel recovered with a bang, with the number of tourists more than doubling from 6.3 million in 2022 to 13.6 million.
Despite this recovery, shares of aviation-related companies SATS Ltd (SGX: S58) and SIA Engineering Co Ltd (SGX: S59), or SIAEC, have not done so well.
SATS’ share price climbed close to 7% year-to-date while SIAEC saw its share price dip by 1.7% over the same period.
With a sustained aviation recovery underway, can both companies see their share prices heading higher?
SATS: Record revenue with a return to profitability
SATS saw a return to profitability for its fiscal 2024 (FY2024) ending 31 March 2024.
The ground handler and food solutions provider saw its revenue soar threefold year on year from S$1.75 billion to S$5.1 billion because of the robust aviation recovery and consolidation with Worldwide Flight Services (WFS).
Net profit came in at S$56.4 million, a turnaround from the net loss of S$26.5 million in FY2023.
Core net profit, which excludes one-off items, logged a more than fourfold year on year increase from S$18.2 million to S$78.5 million.
The group also generated a positive free cash flow of S$326.5 million for FY2024, reversing the free cash outflow of close to S$40 million a year ago.
SATS has resumed paying dividends by declaring a final dividend of S$0.015.
The group also has a more diversified business mix to pivot away from Food Solutions.
For FY2024, 49% of its revenue came from cargo handling with another 29% coming from ground handling.
Food Solutions has been diluted down to just 22% from around 55% before the acquisition of WFS.
SATS: Clear plans to grow the business
SATS has set ambitious financial goals for FY2025.
It aims to repay S$200 million of its loans, reinvest S$300 million into capital expenditure, and resume the payment of dividends.
To do so, the group plans to strengthen relationships with key customers across its network and expand its footprint and hub solutions.
Its food solutions division will also expand via multi-channel networks to target a wider range of customers.
Just last week, SATS opened an upgraded lounge at Changi Airport Terminal 3 (T3) and has plans to refurbish lounges in both T1 and T2 in the coming years.
Its next phase of expansion, dubbed “transform and perform”, sees the group planning to increase revenue to S$8 billion by 2028.
This plan is underpinned by five strategic priorities as outlined by CEO Kerry Mok.
Grow revenue to sustain business growth
Drive operating leverage through better cost efficiency and productivity
Rationalise its portfolio
Repaying debt and optimising cash flow
Returning value to shareholders
Because of these pillars, he mentioned that SATS will not go back to its previous dividend policy of paying out 70% to 80% of its earnings as these earnings can be reinvested to grow the business further.
SIAEC: Higher profits along with twice-yearly dividends
Like SATS, SIAEC also benefitted from the air travel recovery.
The group saw revenue for FY2024 climb 37.5% year on year to S$1.1 billion.
Operating profit turned positive at S$2.3 million, reversing the operating loss of S$26.3 million in the previous year.
Net profit jumped 46.2% year on year to S$97.1 million, helped by a near-30% year on year increase in share of profits from associates and joint ventures.
The repairs, maintenance and overhaul (MRO) specialist also saw its free cash flow generation surge to S$51.7 million for FY2024, up from just S$5 million a year ago.
The group has now resumed paying twice-yearly dividends, with FY2024 seeing an interim dividend of S$0.02 and a final dividend of S$0.06, bringing total dividends for the fiscal year to S$0.08.
This level of dividends was higher than FY2023’s final dividend of S$0.055.
SIAEC: Gearing up for further growth
Like SATS, SIAEC has also set out clear objectives to grow its business.
First off, the group plans to expand overseas and increase its presence in new markets by establishing hangars regionally and setting up component capabilities in lower-cost countries.
Next, management aims to develop new capabilities for the MRO specialist by investing in such capabilities to strengthen its MRO services ecosystem.
Another method is to forge partnerships with original equipment manufacturers (OEMs).
As of March 2024, flight recovery is already at 94% of pre-COVID levels and there is room for further recovery to exceed pre-pandemic levels.
SIAEC will also integrate LEAN manufacturing and digital solutions to lower operating costs while ramping up manpower in anticipation of increased business demand.
The group signed an expanded scope of services agreement with Scoot, a division of Singapore Airlines Limited (SGX: C6L), to include the latter’s new Embraer E190-E2 fleet from 1 April this year.
This contract will be worth an estimated S$52 million over 58 months.
Meanwhile, SIAEC was also recently appointed by Air India as its base maintenance strategic partner for the development of the airline’s base maintenance facilities in Bangalore, India.
This partnership should be up and running by 2026 and will support the MRO needs for Air India’s fleet of aircraft.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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