The aviation sector enjoyed a robust recovery after borders reopened and people starting travelling for leisure and business again.
Share prices of aviation-related stocks such as Singapore Airlines (SGX: C6L) and SIA Engineering (SGX: S59) have seen healthy increases of 25.7% and 14.5%, respectively, over the past two years.
The standout performer, however, is SATS Ltd (SGX: S58).
The ground handler cum food caterer saw its share price leap by 61.2% over the past two years and has surged by 55% alone in the past six months.
Can SATS maintain this momentum and see its share price hit a new 52-week high? Let’s find out.
Uplift from the WFS acquisition
SATS conducted a transformative S$1.64 billion acquisition of Worldwide Flight Services (WFS) back in September 2022.
This purchase catapulted SATS into the big league as WFS had an established portfolio of around 170 on-airport lease warehouses.
The SATS-WFS acquisition also created a global powerhouse that owns 135 cargo stations, making the group the number one player ahead of Swissport with 92 cargo stations back then.
Post-acquisition, SATS reported a strong set of earnings for its fiscal 2024 (FY2024) ending 31 March 2024.
It was also the first full year of consolidating WFS into the blue-chip group’s books.
Revenue for FY2024 nearly tripled year on year to S$5.1 billion.
SATS reported an operating profit of S$244.2 million and a core net profit of S$78.5 million, a fourfold year on year increase from S$18.2 million in FY2023.
Free cash flow also turned positive for the year at S$326.5 million, reversing the negative free cash flow of S$39.8 million in the prior year.
The group also proposed a final dividend of S$0.015, marking the first time the ground handler is paying out a dividend since the pandemic broke out.
Continued robust results
In case you’re wondering if FY2024’s results were a one-trick pony, SATS once again impressed with its recent fiscal 2025 first quarter (1Q FY2025) business update.
Revenue rose 15.5% year on year to S$1.4 billion while operating profit came in at S$112.9 million for an 8.2% operating profit margin.
This performance was significantly better than the prior year’s S$7.9 million operating profit at an operating profit margin of just 0.7%.
Its share of earnings from associates and joint ventures also increased by 67.1% year on year to S$35.6 million for 1Q FY2025.
As a result, SATS’ net profit stood at S$65 million, a far cry from the net loss of S$29.9 million in 1Q FY2024.
Operating statistics were also promising and painted a healthy picture of growth for the group.
The number of flights handed increased by 6.1% year on year to 155,000 while cargo tonnage climbed 19% year on year to 2.2 million tonnes.
Management believes that the acceleration of eCommerce and disruption in maritime shipping should underpin demand for air cargo services.
The International Aviation Transport Authority (IATA) also expects global air cargo traffic to grow by 5% year on year in 2024 and global passenger traffic to increase by 11.6% year on year.
These projections should bode well for SATS’ business and be positive for the group in FY2025 and beyond.
Promising business developments
Aside from the positive developments expected for the aviation and air cargo sectors, SATS has also been busy on the business development front.
The group formed a strategic partnership with Mitsui (TYO: 8031), a global trading and investment company, to explore growth for SATS’ Food Solutions division.
SATS also signed a memorandum of understanding (MOU) with Shun Feng, a logistics provider, to expand the two parties’ collaboration and to achieve supply chain optimisation.
Over at Kuehne & Nagel (SWX: KNIN), SATS has partnered with the global transportation company to conduct sea-to-air service trials to help drive down operating costs.
SATS also opened a new cargo terminal in Madrid, its fifth there, that helps to expand its cargo handling capacity by 60%.
Management has also not been idle on acquisitions since WFS.
Back in March, SATS acquired Terminal & Transporttjanst I Sigtuna AB and APH Logistics AB.
Both companies are headquartered in Sweden and were purchased for around S$12.1 million.
This move strengthened SATS’ presence in the Scandinavian market and also added new capacity for growth.
Get Smart: Firing on many cylinders
The future looks bright for SATS.
Armed with synergies from its WFS acquisition, the group has reported a strong set of earnings for 1Q FY2025 and also paid out its first dividend since the pandemic ended.
Investors can also look forward to better days ahead as aviation and tourism rebound and head towards pre-pandemic levels.
SATS also has a slew of business development initiatives that can not only help the group to expand its presence, but also help to reduce costs and attain better efficiency.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
