Trump’s widespread tariffs have sent a shockwave through global stock markets.
Earlier this week, the Straits Times Index (SGX: ^ST) plunged 7.5% in its largest one-day drop since the pandemic began five years ago.
SATS Ltd (SGX: S58) was not spared, either.
Even before the sell-down, the airline caterer was one of the worst-performing blue-chip stocks.
SATS’ share price has tumbled 27% year-to-date and investors may be curious to know if the group can see a rebound anytime soon.
A sparkling set of earnings
SATS delivered a strong set of earnings for the first nine months of fiscal 2025 (9M FY2025).
Revenue increased 14% year on year to S$4.3 billion while operating profit more than doubled year on year to S$367.4 million.
The group’s net profit stood at S$205.1 million, soaring more than eightfold year on year.
SATS’ revenue for both its Gateway Services and Food Solutions divisions increased by double-digits year on year for 9M FY2025.
This was in line with robust air cargo volumes and the recovery of air travel which pushed up demand for in-flight meals.
Strong operating metrics
In line with the strong results, SATS also reported solid operating metrics.
The number of flights handled for 9M FY2025 increased nearly 6% year on year to 477,000 while cargo tonnage hit 6.8 million tonnes, up 16.6% year on year.
SATS served a total of 48.6 million aviation meals, 24% more than it did in the previous year.
Non-aviation meals also inched up almost 1% year on year to 32.2 million.
These statistics point to a healthy demand for SATS services that is in line with strong cargo demand and air travel recovery.
Tariff impact on trade flows
Despite the robust financial and operating numbers, dark clouds have formed over SATS’ business.
Back in February, management already warned that tariff increases could possibly hurt trade flows.
With a full-blown trade war looming, trade flows could be significantly disrupted as supply chains need to readjust to the new tariff reality.
As a result, companies may hold off their investments or cut spending in anticipation of higher costs.
With trade flows set to decline, cargo volumes could also be adversely impacted.
Greater control under the new law
A new law recently came into effect on 1 April that subjected 19 key entities in the transport sector to greater regulatory scrutiny.
Called the “Transport Sector (Critical Firms) Act”, this law gives the Singapore Government more control over these companies to guard against adverse influences and major interruptions.
Companies such as SBS Transit (SGX: S61), Singapore Airlines (SGX: C6L), SATS, and SIA Engineering (SGX: S59) are on the list.
The designation of these companies will start on 15 April, when designated entities need to inform the relevant authority and seek approval for major ownership and leadership changes.
The authorities also need to be informed of any event that could materially impair the provision of essential transport services.
In drastic cases, the government could step in to regulate and manage the designated entity.
Air passenger demand to moderate
Meanwhile, the International Air Transport Association (IATA) expects global air passenger demand to grow by 8% year on year for 2025.
The strong demand seen in 2024 will taper off this year as air passenger demand looks set to moderate.
However, this forecast was provided at the end of January 2025 and has not accounted for the recent wave of tariffs imposed by President Trump.
With costs for goods and services set to increase, consumer demand may fall sharply, resulting in lower travel demand.
In a worst-case scenario, air travel demand could turn negative if the effects of the tariffs prove persistent.
Lower passenger volumes will impact SATS as the group will have fewer flights to handle and be able to serve fewer in-flight meals.
Get Smart: Caution warranted
While SATS reported a sparkling set of earnings for 9M FY2025, investors should be cognisant of the risks surrounding the group.
Trump’s tariffs look set to significantly impact trade flows and should a full-blown trade war break out, consumer demand could also be adversely affected.
Investors should adopt a wait-and-see attitude and monitor SATS’ earnings announcements and commentary to obtain the latest update on the evolving situation.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
