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Here Are 10 Key Takeaways From SATS’s Latest Quarterly Earnings Update

Yesterday evening, SATS Ltd (SGX: S58) released its second quarter earnings update for its fiscal year ending 31 March 2019 (FY2019). For context, SATS is Asia’s leading provider of gateway services and food solutions, and provides services such as airline catering, airfreight handling, and baggage services. The company is present in over 60 locations and 13 countries across Asia and the Middle East.

Here are 10 highlights from SATS’s latest earnings update:

1. Revenue for the second quarter of FY2019 increased by 4.2% – or S$18.3 million – to S$453.1 million. The revenue growth can be attributed to better revenues for the Food Solutions division (up 2.5% year on year to S$250.9 million) as well as the Gateway Services division (up 6.3% year on year to S$201.6 million).

2. Total expenditure for SATS in the reporting quarter increased by 3.6% from a year ago to S$387.1 million, which led to the company’s operating profit growing by 8.0% to S$66.0 million. SATS’s operating margin increased from 14.1% in the second quarter of FY2018 to 14.6%.

3. SATS’s share of profits of associates and joint ventures declined by 22.2% from S$18.0 million a year ago to S$14.0 million because of two reasons: (a) There were lower volumes at Brahim’s Catering (a 49%-owned associate in Malaysia) and (b) higher concession fees plus negative forex impact at PT CAS Group (a 41.7%-owned associate in Indonesia).

4. SATS’s underlying net profit for FY2019’s second quarter was up 0.8% year on year to S$65.7 million, after stripping out a one-time S$7 million gain recorded a year ago from the sale of assets.

5. SATS’ balance sheet remained robust, with S$281.7 million worth of cash and S$96.4 million worth of debt (for a net cash balance of S$185.3 million) as of 30 September 2018.

6. The company’s return on equity for the reporting quarter was 4.0%. Annualizing this gives an ROE of 16% for the full fiscal year, which is only slightly lower than the 16.2% ROE for FY2018.

7. For the second quarter of FY2019, operating cash inflow was S$12.0 million due to a large decrease in trade payables of S$62.3 million. With capital expenditure of S$20.9 million, SATS therefore generated negative free cash flow of S$8.9 million in the reporting quarter. But, looking at the first half of FY2019, SATS generated operating cash flow of S$103.4 million, up 14.1% from S$90.6 million in the same period a year ago; free cash flow for the first half of FY2019 also grew, by 36.9% to S$63.4 million.

8. SATS declared an interim dividend of S$0.06 per share, unchanged from the year before. Combining the current interim dividend of S$0.06 along with FY2018’s final dividend of S$0.12, SATS’s trailing dividend is S$0.18. SATS’s current share price is S$4.94, the company has a trailing dividend yield of 3.6%.

9. The company handled 29.5 million passengers in the first half of FY2019, up 13.6% from a year ago. Gross meals produced also increased by 9.5% to 38.2 million.

10. SATS is cautious about near term trade tensions and weaker sentiment affecting trade volumes and emerging markets, but the company is confident of its long-term prospects as aviation volumes are set to rise and the demand for safe, quality food should grow too. The company also intends to continue to pursue organic and inorganic (i.e. acquisitions) growth strategies.

In all, SATS reported a respectable set of results for the second quarter of FY2019 amid ongoing trade tensions between USA and China, and also generated much healthier free cash flow in the first half of the fiscal year. Looking ahead, as passenger arrivals continue to grow in Singapore and Asia, this augurs well for the company, and its business should continue to perform well.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in SATS.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing owns shares in SATS.