SATS Ltd’s Latest Earnings Briefing: A Big Contract Win, Strengths and Challenges

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

There were a number of topics covered during the briefing, including a new contract win SATS had secured, the company’s strengths and the challenges it’s facing.

As a brief background, 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 handles airport terminal and cruise terminal services such as the ground handling of passengers and cargo.

SATS’s strengths

In the briefing, SATS’s chief executive Alex Hungate shared the company’s purpose: Feeding and Connecting Asia. The slide below captures this:

2016-06-12 Feeding and Connecting Asia
Source: SATS’s earnings presentation

In line with the above, Hungate believes that SATS’s competitive strength lies in its ability to run large centralized kitchens. He said:

“Why should SATS have an aspiration to feed Asia? Well, we are good at one thing, that is running large, centralized kitchens. So, we have the combination of the multi-cultural culinary skill, and the ability to use large scale capital to create productivity advantages.”

Beyond that, Hungate also spoke about SATS’s advantage of having a network in Asia:

“The advantage here is also our network.

We are in 45 airports across 12 countries. None of our competitors in Asia has that spread. So, we explicitly look to use technology and business relationships to make the individual journeys more seamless and also to make the trans-shipment of air freight more efficient. When you are in 45 airports, you can do things that people in one airport cannot do.

So, that is a big part of our strategy.”

This advantage might come in handy when Singapore Changi Airport’s Terminal 4 opens its doors next year.

A strategic win

Terminal 4 could provide a boost to SATS’s overall business. Hungate explains:

We are ramping up Terminal 4. In fact, I can share some good news with you. We have secured a big new customer, AirAsia, which will be a base customer for us in Terminal 4. There are two airlines who have announced that they are definitely going to Terminal 4, one is AirAsia and one is Cathay Pacific. So, that new customer gives us the base volume that we need to make a good commercial opportunity out of Terminal 4.

Therefore, it is a strategic win for us, we are very happy.”

Moreover, Hungate indicated that SATS will not be spending significant costs for the new terminal. He expressed confidence that the costs will be covered with the new contract with AirAsia.

SATS’s challenges

It is not always just sunshine and roses. SATS has its own set of challenges. Here’s Hungate responding to a question on competitive pressures:

“The airline catering market is a competitive market and continues to be a competitive market, so there is always pricing pressure.”

To be sure, Hungate remains optimistic despite the competitive pressure:

“I think with the reputation that SATS has and the long term relationships we have, this combination of culinary expertise and food safety reputation, I think we command a price premium in the market. And there is nothing that has changed in the last several years.”

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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.