The Stronger Stock Now: SATS Ltd vs. SIA Engineering Company Ltd

There may be promising growth trends taking place in the aviation industry.

According to aircraft manufacturer Airbus’s recent Global Market Forecast 2015-2034 report, global air traffic is estimated to climb at an annual rate of 4.6% over the next 20 years. This represents more than a potential doubling of air traffic flow by 2034.

Meanwhile, in a speech for the Singapore Airshow Aviation Leadership Summit dinner in February this year, Singapore’s Deputy Prime Minister Tharman Shanmugaratnam mentioned that aviation in Singapore has big growth potential over the next decade and beyond, driven partly by Asia’s rising middle class (both in terms of affluence and headcount).

There are a number of companies in Singapore’s stock market that are plugged into the aviation industry. Two of them happen to be SATS Ltd (SGX: S58) and SIA Engineering Company Ltd (SGX: S59).

The former provides services such as airline catering, airline linen laundry, baggage handling, airfreight, and aviation security. As for the latter, it’s a subsidiary of Singapore Airlines Ltd (SGX: C6L) and is involved with the maintenance, repair, and overhaul (MRO) of aircraft.

Individual investors who are interested in tapping into the possible growth of the aviation industry might be wondering: Would SATS or SIA Engineering be the stronger aviation stock at the moment?

There are many things investors need to look at in order to arrive at the answer to the question. But in here, let’s focus on three key aspects of the two companies’ business fundamentals: The strength of their balance sheets, their track record of growth, and their valuation.

Strength of the balance sheet

The study of a company’s balance sheet is crucial because a weak balance sheet – one that’s stuffed full of debt – can expose investors to high levels of risk.

When a company with a weak balance sheet has trouble servicing or repaying its loans, its shareholders may have to face painful situations such as dilution, the elimination of dividends, the forced sale of assets by the company, and in the worst-case scenario, the bankruptcy of the firm.

The following table illustrates the latest cash and debt-levels in the balance sheets of both SATS and SIA Engineering:

SATS and SIA Engineering balance sheet table
Source: Companies’ earnings report

We have a tie here. As the table shows, both companies have strong balance sheets that have more cash than debt.

Track record of growth

A company’s past achievements may not be a perfect indicator of how its future may unfold, but history can still give us some useful guidelines when thinking about how a firm’s business may perform in the years ahead.

The metrics I have an interest in here are SATS and SIA Engineering’s revenues, profits, and operating cash flows. Here’s how these metrics have changed over the past five years:

SATS and SIA Engineering growth table
Source: S&P Global Market Intelligence

The table just above show that SATS is the company with the stronger track record of growth in all three areas.


Even the best business can become a horrible investment if bought at too high a price. That’s why a company’s valuation is important.

There’s no need to obtain precise valuation numbers for SATS and SIA Engineering for our purposes here. Given the fact that the earnings and revenue for both companies have not exhibited wild cyclicality in the past, the simple price-to-earnings (PE) and price-to-sales (PS) ratios can be useful valuation measures. Here’s how SATS and SIA Engineering stack up:

SATS and SIA Engineering valuation table
Source: S&P Global Market Intelligence

In terms of the PE and PS ratio, SATS is the cheaper stock of the two, as the table immediately above makes clear.

A Fool’s take

In summary, both SATS and SIA Engineering have strong balance sheets. But, SATS looks to be the stronger stock here as it has the better historical growth record and the relatively more attractive valuation.

As a reminder, all that we’ve seen about SATS and SIA Engineering in here may be important, but they shouldn’t be taken as the final word on the investing merits of the two companies. Like I’ve already mentioned, there are other important areas of the pair’s businesses to look at before any investing decision can be reached.

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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 writer Chong Ser Jing doesn't own shares in any companies mentioned.