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3 Slides That Sum Up SATS Ltd’s Huge Opportunity

SATS Ltd  (SGX: S58) held its fiscal fourth-quarter earnings presentation recently.

During the presentation, Alex Hungate, SATS’s chief executive, shared three slides that had summarised the company’s strategic overview. They caught my eye.

As a brief background for some context later, SATS 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 covers ground handling services of passengers, flights, and cargo.

SATS’s Asian adventure

The first slide showed the rapid rise in Asia’s middle class:

2016-06-01 SATS Asia Middle Class
Source: SATS’s earnings presentation

During the presentation, Hungate said:

“The rapid urbanisation and growth in middle class in Asia is a phenomenon which is shaping our century. And of course, it’s not just China. It’s all of Asia, including Southeast Asia and south Asia.

So, the majority of the world’s middle class, the majority of the world’s urban populations are now in Asia. And that drives the two businesses that we are primarily exposed to, one is travel and one is food. So, we are direct beneficiary of those big megatrends.”

As you can see in the slide above, 66% of the world’s middle class in 2030 will come from Asia. The shift in the middle class-concentration could lead to more travel and food demand arising in Asia. This leads us to the next diagram:

2016-06-01 SATS Asia Food Demand
Source: SATS’s earnings presentation

On food demand, Hungate said:

“Food consumption in China is expected to double, and food demand in Asia is expected to double. Not in 10 years, but in five years. By 2020. So, these are very fast growth rates and can create opportunity for those people who can get exposure to that.

And Indonesia, in our neck of the woods, is also growing very quickly in terms of aviation and in terms of food demand.”

This could be the impetus behind SATS setting up a joint-venture in January this year with Yihai Kerry, a wholly owned subsidiary of the Singapore-listed giant palm oil producer Wilmar International Limited (SGX: F34). The goal of the joint-venture is to supply safe and high quality food into the China market.

The third slide deals with Asia’s prominence in the global aviation scene:

2016-06-01 SATS Asia Travel Market
Source: SATS’s earnings presentation

On Asia’s importance in aviation, Hungate said:

“In the aviation space, this is important to understand – it’s not just the long haul connecting continents. Within Asia is actually the fastest growing category.

So, the air travel within Asia is going to triple within these next 20 years. It’s already as large as North America, but it is going to triple. It’s going to leave North America way behind.

So, these are the big trends which leaves us excited about the future.”

The three major trends shown above are interesting but they don’t guarantee that SATS can benefit from them. Investors should be looking for signs of how SATS is going to take advantage of these tailwinds to generate future growth and subsequently, shareholder returns.

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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.