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8 Useful Things Investors Should Know About SATS Ltd

SATS Ltd  (SGX: S58) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations and conference calls (the link for SATS is here).

The company has two major business segments, namely, Food Solutions and Gateway Services. The former covers airline catering, food distribution, industrial catering, and other services. Meanwhile the latter is involved in ground handling services of passengers, flights, and cargo.

You can read more about SATS in here and here.

Chomping up returns?

SATS had recently reported its fiscal second-quarter earnings for its financial year ending 31 March 2016 (FY15/16). Below are eight useful things I learned from listening to its earnings conference call:

  1. On the whole, operational statistics for the quarter looked healthy for SATS. Passengers handled rose 4.5% year-on-year for the quarter, while gross meals produced was up 6.1%. Cargo processed, though, was down 1% year-on-year. Chief Executive Officer Alex Hungate said that the cargo decline was inline with Changi Airport’s statistics, which suggests that SATS has maintained its cargo market share. He also noted that the Jetstar contract that SATS regained was not fully accounted for in this quarter.
  2. Revenue from SATS fell by 4.4% year-on-year in the second fiscal quarter but earnings per share rose by 28.6% to 5.4 cents. The higher earnings was achieved on the back of stronger operating margins and higher contribution from SATS’s associates and joint ventures. Overall, this is a continuation of the past two quarter’s theme of lower revenue but higher profits.
  3. SATS has tightened its belt on costs. Cost of raw materials, premise and utilities expenses, and other costs all fell, contributing to a 9.1% year-on-year declne in group expenditure for the quarter. This performance contributed to the higher profit despite the lower top-line. Cho Wee Peng, Chief Financial Officer for SATS, said that the transfer of the food distribution business to the SATS-BRF joint-venture contributed to a major portion of the raw material cost reduction.
  4. SATS has a good number of associates and joint ventures under its umbrella. Among them are Air India SATS (AISATS), Asia Airfreight Terminal (AAT Hong Kong), Beijing Airport Inflight Kitchen (BAIK), Maldives Inflight Catering (MIC), and PT Jasa Angkasa Semesta (PT JAS Indonesia). Together, the above account for 80% of SATS’s associate and joint-ventures’ after-tax profits.
  5. Despite the challenging operating environment, SATS remains confident in its long term growth prospects. SATS is offering to buy a 49% equity stake in Brahim’s Airlines Catering Holdings to grow into adjacent businesses. Notably, Malaysia Airlines Berhad owns a 30% stake. Hungate added that Brahim’s Holdings Berhad is major player in Kuala Lumpur International Airport.
  6. Food Solutions’ revenue fell by $25 million year-on-year. However, Hungate pointed out that the SATS BRF joint-venture and the disposal of an Australian subsidiary had a $31 million impact on the segment’s revenue. As such, he said that the underlying revenue for the quarter actually grew by $6 million year-on-year.
  7. SATS’s Japanese subsidiary, TFK, had signed a contract with Delta Air Lines worth $325 million in late June. The results from this deal will start to roll in from October 2015. This looks like a one month delay compared to SATS’s last update. Hungate commented that the closure of Delta Airlines’ own kitchen (due to this deal) may change the supply-demand characteristics of the Japan market. TFK still has five major competitors in Japan, though.
  8. SATS has a two-decade presence in China, primarily through BAIK and Beijing Aviation Ground services. It has long term partnerships with Capital Airport Holdings (owner of Beijing airport) and two Chinese airlines, China Eastern Airlines and China Southern Airlines. Hungate added that China is one of the big three geographies SATS is focused on.

Foolish takeaway

To buy and hold a company’s shares for the long term also means the need to keep up with its developments.

The access to management teams via webcasts and transcripts gives the Foolish investor a fair chance to judge for themselves whether they would like to be invested alongside those teams. It also helps us put together a more complete thesis around a company and keep up with developments in its industry.

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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 contributor Chin Hui Leong doesn't own shares in any company mentioned.