SATS

News
29 Nov 2010, SATS Investments Pte Ltd, has entered into an agreement to purchase Japan
Airlines International Co., Ltd’s (JALI) entire stake of 50.7% in TFK Corporation (TFK) for ¥7.8
billion (approximately S$122 million).  

25 Oct 11, SATS sold its non-aviation UK business, Daniel’s Group for approximately S$304 million (151 million pounds).

22 Dec 11, SATS won the bid to manage and operate the new Singapore International Cruise Terminal (ICT) at Marina South.

Assessment

Financial Portion
07 Feb 2012, SATS released their 3rd quarter financial statement. SATS revenue in 3Q12 were made up of 3 parts. Food solutions formed 64%, followed by gateway services which formed 36%. TFK contributed the remaining 22%. Net cash flow from selling its subsidiaries, one of which is Daniel’s group, generated cash flow of S$283.5m. Net Cash flow increased from S$166.7 million to S$421.3 million in 3Q11. In 3Q2012, a significant increase 252.7% in cash flow.
Share capital had also increase from 323.1 million in 31 Dec 10 to 326 million in 31 Dec 11.

Acquistion of Tokyo Flight Kitchen(TFK) Corp
1 Sep 2011, OCBC research released an article with regards to the purchase of  TFK Corp. It states that the acquistion will not contribute significantlly to SATS revenue. However, the rationale of the purchase is to gain a new foothold in the market and access to new potential customers. Firstly, SATS had assumed full management control of TFK which was a lost making entity. In 1Q12, TFK reported a pre-tax loss of S$7m. Secondly, SATS planned to tighten operations and increase efficiency, instead of undertaking large scale job cuts. Lastly, they are confident that TFK will return to profitability in 2013 which corresponded to the S$1.5 million they contribute to the 3Q12.

Disposal of Daniel’s Group
28 Oct 11, according to OCBC research, SATS said that Daniels, which focuses more on the production and distribution of food products, is different from its catering-focused food solutions business in Singapore. They also state the weakening of the GBP as of the the contributing factor to the disposal. However, the management clarifies that the disposal is not meant to raise funds for future acquisitions.
In my opinion, the disposal will give SATS will resources to focus on their core business, which is their food solutions. The increase in revenue of 48.1% in food solution and 10% in gateway services as compared to the last 9 months in 2010, is assessed to be related to the sale of Daniel’s Group.

Future Opportunities
There is no information on whether SATS will provide In-flight meals and ground handling services to the new SIA low cost carrier, “SCOOT”. However, SATS, with 60 years of operating experience, in my opnion is well placed to win the contract.

Dividend Yield
The current price of $2.35 per share comparing with FY2010’s dividend payout will give investors a attractive 5% dividend yield.
Dividends are expected to increase in FY2012 with the sale of Daniels Group.

PE Ratio
PE ratio is estimated to be 17 with the share price of $2.36. Good price to enter is $2.15 with a PE ration of about 15.

Summary
Firstly, on the 29 Nov 2010, SATS acquired TFK to gain entry on a new market. This may possibly explained that it is constantly in search of growth opportunites for the company.

Secondly, on the 25 Oct 11, SATS sold its UK Daniel’s group stakes to free up resources for improving its core business and to avoid a weakened GBP to affect the company’s revenue.
The sale will allow SATS to be in a stronger position to obtain growth mainly in its food solutions and gateway services.

Lastly, SATS won bid to manage and operate the new Singapore International Cruise Terminal at Marina South. This additional growth opportunity will most probably increase the gateway services revenue at least by FY2013.

In short, there are many good channels of growth coming up for SATS and i think that it will generate good profits in the years to come. PE ratio is high now, but be patient. This company has a steady growth rate and a team of good management and leaders. I have confidence in the company’s ability to payout good dividends to shareholders, as well as its strong positioning to capture future growth. Good luck to those vested in this company. :)
About SATS Ltd
With over 60 years of operating experience and an emerging global presence, SATS is
Singapore’s leading provider of gateway services and food solutions.  
Our comprehensive scope of gateway services encompasses airfreight handling, passenger
services, ramp handling, baggage handling, aviation security and aircraft interior and exterior
cleaning while our food solutions business comprises airline catering, food distribution and
logistics, industrial catering, ambient, chilled and frozen food manufacturing as well as airline
linen laundry.


Published on 9 Feb 2012