Last year, the Straits Times Index (SGX: ^STI) pulled off a remarkable performance by rising 16.9% for the year.
Coupled with dividends, the total return for the bellwether blue-chip index hit 23.5%, a feat not achieved in more than a decade.
SATS Ltd (SGX: S58) is one of the blue-chip stocks that performed much better than the index.
The airline ground handler saw its share price climb 32.4% to end the year at S$3.64.
Investors may be wondering if the food caterer can pull off a similar performance this year. Let’s find out.
A solid performance for fiscal 2024
SATS delivered a solid performance for its fiscal 2024 (FY2024) ending 31 March 2024.
Revenue nearly tripled year on year to S$5.1 billion, boosted by SATS’ acquisition of Worldwide Flight Services (WFS) in late 2022.
The ground handler generated an operating profit of S$244.2 million for FY2024, reversing the operating loss of S$48 million in the prior year.
SATS’ share of earnings from its associates and joint ventures surged 142% year on year to S$110 million, helping to lift core net profit to S$78.5 million, up more than fourfold from S$18.2 million in FY2023.
The group also resumed paying dividends with the declaration of a S$0.015 final dividend.
Back then, CEO Kerry Mok’s vision was to transform SATS into a global champion.
COVID-19 brought down the group’s profits and return on equity (ROE) but FY2024 saw a decent recovery with revenue hitting S$5.1 billion.
Back in FY2023, the ROE was just 2.4% but SATS is targeting to grow revenue to exceed S$8 billion by 2028 along with a target ROE of around 15%.
A good start to fiscal 2025
SATS has continued its strong performance for the first half of fiscal 2025 (1H FY2025) ending 30 September 2024.
Revenue rose 14.8% year on year to S$2.8 billion while operating profit more than tripled year on year to S$240.1 million.
Net profit came in at S$134.7 million, reversing the prior year’s net loss of S$7.8 million.
The airline food caterer also paid out an interim dividend of S$0.015.
Operating statistics were also solid, with the number of flights handled increasing 5.5% year on year to 316,000.
SATS served 32.3 million meals in 1H FY2025, 26% higher than the previous year.
The group also handled 4.4 million tonnes of cargo, a 17.5% year-on-year jump from the 3.7 million in 1H FY2024.
Management provided a positive outlook with demand for travel and cargo expected to continue rising.
SATS is committed to improving operating efficiency, scaling up the business, and introducing new product offerings to entrench itself in the regions where it has operations.
Clear skies ahead
The International Air Transport Association, or IATA, expects stronger profitability for the aviation industry even with persistent supply chain issues.
IATA is the trade association for the world’s airlines and represents over 340 airlines making up 80% of global air traffic.
According to IATA, passenger demand is expected to grow by 8% this year while aircraft departures are forecast to rise by 4.6% year on year to reach 40 million.
Of the surveyed participants in IATA’s public opinion poll, a whopping 94% said they expected to either travel more or at the same current frequency.
These findings and forecasts bode well for SATS’ business as it should lead to higher passenger volumes, flights, and meals served.
Encouraging business developments
The group has also announced encouraging business developments in the past year that look set to boost its business further.
In August 2024, WFS expanded its capacity at Amsterdam’s Schiphol Airport with the acquisition of Menzies World Cargo.
This purchase will increase the warehouse capacity and cargo handling capabilities of WFS, thereby positioning it for growth over the long term.
Just last week, Air India awarded cargo and ground handling contracts to both SATS and WFS across multiple major airports in Asia, Europe, the Middle East, and North America.
The airline awarded 14 new contracts and renewed 11 contracts, thus helping to expand Air India’s relationship with SATS and WFS.
These contracts should also help to boost SATS revenue for FY2025 and beyond.
Get Smart: Revenue and profits taking flight
SATS has proven that it can generate higher profitability after it acquired WFS.
The ground handler cum food caterer is also seeing blue skies ahead when it comes to passenger and cargo numbers.
Management has undertaken promising business initiatives that can help to further grow SATS’ presence and increase its top and bottom lines.
SATS’ prospects look good this year, but investors also need to keep an eye out for any risks lurking on the horizon that may scuttle the group’s progress.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
