Why SATS Ltd May Have Just Become a Riskier Stock

In a March 2016 article, I had looked at the balance sheet and customer concentration risks that airline caterer and airport terminal services provider SATS Ltd (SGX: S58) had faced.

(See article here)

Back then, I had used data from the company’s quarter ended 31 December 2015 for its balance sheet risk. As for customer concentration, I used information from SATS’s annual report for its fiscal year ended 31 March 2015 (fiscal 2015).

SATS had released its latest annual report for fiscal 2016 roughly a month ago and so I thought it’d be interesting to see how the company’s balance sheet and customer concentration risks have changed.

Things still look great on the balance sheet front. As of 31 March 2016, SATS has S$490 million in cash and equivalents and just S$110 million in total borrowings.

In fact, the company’s balance sheet has strengthened from the previous sequential quarter; as I pointed out in my earlier article, SATS had S$417 million in cash and S$109 million in total debt as of 31 December 2015.

But, the picture appears to have deteriorated when it comes to customer concentration risks. In SATS’s latest annual report, the company reported it had sourced a total of S$776 million in revenue from just one major customer. SATS’s total revenue in fiscal 2016 is S$1.698 billion, so the major customer was responsible for 45.7% of the company’s total business that year.

In fiscal 2015, SATS had one major customer that accounted for ‘only’ 42% of total revenue.

I wrote in my earlier article that “having a high level of customer concentration need not necessarily be a bad thing. But, it’s still a risk that investors may want to note and keep an eye on.” This still applies, except that investors may want to cast an even more watchful eye given that SATS’s level of customer concentration has increased.

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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.