What Investors Should Know About SATS Ltd’s Growth Strategy

SATS Ltd (SGX: S58) is a company with two business segments, namely, Food Solutions and Gateway Services. The former covers services such as airline catering, food distribution, and industrial catering. The latter is involved in ground handling services of passengers, flights, ferries, and cargo.

For investors or potential investors in SATS, it is important to understand how the company is positioning itself for the future, so as to have a better grasp on the potential performance of the business in the years ahead.

To help with that, it would be useful to look at the Chairman and CEO’s statement found in SATS’s annual report for its FY2016/17 (financial year ended 31 March 2017). The statement mentioned that SATS has “adopted a three-pronged approach in order to capture the opportunities” the company sees.

Let’s run through each of the three prongs.

First: Organic growth

 “Firstly, anticipating future demand and the region’s market potential, we continue to seek organic growth in our existing portfolio. Notably, our Japan inflight catering operations TFK showed strong revenue growth of 17.1% this year, and returned to profitability.”

SATS plans to grow its existing businesses organically. Given the company’s presence in at least four countries, and the long-term growth potential of the global aviation market, there seems to be opportunities that SATS can tap into to drive organic growth.

Second: Market expansion

“Secondly, we are leveraging our expertise to build out our core businesses to expand our regional presence across Asia and the Middle East. We became the first international cargo handler to be awarded a cargo handling licence in Dammam, Saudi Arabia. This comes on the heels of a new joint venture with Oman Air to form Oman Air SATS Cargo in early 2016. These add to our efforts to enhance connectivity for our cargo customers in the region.”

The second prong comes from SATS leveraging its existing expertise to expand into new markets across Asia and the Middle East.

Third: Diversification

“Thirdly, to better serve our customers and create new revenue streams, we are entering complementary, adjacent businesses. For example, targeting the potential that we see in eCommerce, we successfully completed the construction of SATS eCommerce AirHub, a new highly automated mailbag sortation facility.”

Lastly, SATS is exploring opportunities to diversify into new business areas which are complementary to its existing business portfolio. Of the three prongs, this is the most uncertain strategy given that SATS would be moving into uncharted territory.

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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for SATS Ltd.