How Does SATS Ltd Earn Money?

SATS Ltd (SGX: S58) has been a solid performer in Singapore’s stock market over the past five years with its stock price up by 79% in total. This trounces the Straits Times Index’s (SGX: ^STI) gain of less than 10% over the same period.

Investors in the company are likely happy with the performance and may be asking themselves whether it’s time to sell. At the same time, those that don’t own SATS could be wondering if they should hop onboard. An analysis of how the company earns revenue could help with these questions.

In its fiscal year ended 31 March 2017 (FY2016-17), SATS generated total revenue of S$1.729 billion. In its annual report for FY2016-17, the company shared a breakdown of its revenue streams by segment, industry, and geography.

Let’s start with the segmental breakdown. The chart below shows the revenues from each of SATS’s business segments in FY2016-17:

Source: SATS FY2016-17 annual report

Food Solutions and Gateway Services are the two main business segments of SATS. You can also see that the two segments are both highly important to the company, given that Food Solutions accounted for 56.3% of SATS’s total revenue, while Gateway Services accounted for 43.4%.

The Food Solutions segment generates revenue through “inflight catering, institutional catering, remote catering, food distribution and logistics, chilled, frozen and retort food manufacturing, hospitality services and airline linen and laundry services.”

Meanwhile, Gateway Services generates its revenue “from airport and cruise terminal services, including ground and cargo handling, passenger and security services, baggage handling, apron services and cargo logistics services.”

Now let’s move on to a chart showing SATS’s revenues from the various industries it participates in. In the chart below, you can see that the aviation industry accounted for most of SATS’s total revenue in FY2016-17.

Source: SATS FY2016-17 annual report

Lastly, we have the geographical breakdown of SATS’s revenue in FY2016-17:

Source: SATS FY2016-17 annual report

Singapore is SATS’s most important geographical market as it accounted for nearly 80% of the company’s revenue in FY2016-17.

Given all that we’ve seen about SATS, it would make sense for investors who are interested in the company to pay attention to developments at Changi Airport. After all, SATS is a company that depends on activity in Singapore’s aviation industry for business.

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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.