What Does SATS Ltd Do And How Does It Make Its Money?

Source: SATS

It is important to know what a particular company does and how it makes its money before investing in it. Investing in a stock without such knowledge is akin to travelling to an unknown territory without a map.

On that note, let’s take a look at how SATS Ltd (SGX: S58), a constituent of the Straits Times Index  (SGX: ^STI), generates its revenue.

The company, which has been in business for over 65 years, has three business segments and the table below shows their revenue contributions in the financial year ended 31 March 2016 (FY2016):

Source: SATS’s Annual Report 2015-16

Revenue from Food Solutions, which made up 57% of SATS’s total revenue in FY2016, come mainly from inflight catering, institutional catering, food processing, distribution services, and airline laundry services.

Gateway Services, the next big chunk of SATS’s total revenue at 42.7%, is where SATS provides airport and cruise terminal services – think ground and cargo handling, passenger and security services, baggage handling services, apron services, and cargo logistics services.

Revenue from the last and smallest segment, Corporate, comes partly from SATS renting out certain premises.

Besides separating its revenue streams by business segments, SATS also looks at its revenue by industry. Under this format, the company splits its revenue into three industry classifications: Aviation, Non-Aviation, and Corporate. Here’s the revenue contributions of the three industry groups in FY2016:

Source: SATS FY2016 earnings presentation

It’s also worth mentioning that SATS handles around 50 of the 68 scheduled airlines out of Singapore. The non-aviation industry for SATS includes hospitality, food, healthcare, freight, and logistics.

Behind every ticker symbol lies a living, breathing business. Buying a stock without fundamental knowledge of what the company does and how it makes money can be dangerous.

Once we know the basics of a company’s revenue streams, we can then delve into other aspects of the firm such as its profitability, strength of its balance sheet, its cash generating abilities, and more. With this look at SATS, we now know that the ebbs and flows of the aviation industry would be important for the company, given its large exposure to the 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 Sudhan P doesn’t own shares in any companies mentioned.