The Three Numbers That Help SATS Deliver

SATS logoWe sometimes don’t appreciate the hard work that goes on behind the scene at airports. But where would we be without SATS (SGX: S58), formerly known as Singapore Airport Terminal Services.

The company provides a range of ground handling services that include lounge management, aviation security, passenger services and the ever-important baggage handling. SATS, which was founded in 1972, is also involved in in-flight catering, food processing and it even distributes meat and seafood under the Tenderfresh and Farmpride brands.

SATS has, over the years, delivered a respectable Return on Equity (RoE) for shareholders. At around 10%, its RoE is about average for the market.

It has achieved this through a decent Net Income Margin. The company makes around $10 profit on every $100 of revenue generated. The margin is not too dissimilar to its peers in the transportation sector that include ComfortDelGro (SGX: C52) at 7%, and SMRT (SGX: S53) at 11%. However, it falls short of the average for the 30 companies that make up the Straits Times Index (SGX: ^STI). The market average is around 19%.

That said, SATS is very good at sweating its assets. It generates almost 76 cents for every dollar of asset employed in the business. That is almost 50% higher than the average Asset Turnover for the market. Interestingly, though, SATS does not use a huge amount of leverage. Its Leverage Ratio of 1.3 is below the average for Singapore’s blue-chip and midcap companies.

Putting together the three components of SATS’s Return on Equity, it is easy to see what makes helps the company deliver. Its return on Equity of 10% is the product of a healthy Net Income Margin of 10%; an above-average Asset Turnover of 0.76 and light Leverage Ratio of 1.3.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.