S ATS Limited is Singapore Changi Airport’s dominant in-flight catering and ground-handling services provider. It is one of Singapore’s homegrown success stories alongside Singapore Airlines and Changi Airport.

SATS has a history stretching back to Paya Lebar Airport

The company was the in-house service provider of Singapore Airlines before being established as Singapore Airport Terminal Services Ltd in 1972. In the following years, it went from predominantly servicing its parent to becoming the preferred service provider for airlines operating at Paya Lebar Airport. SATS diversified into the cargo business in 1977 with an airfreight-terminal capable of processing 100,000 tonnes annually. Fast-forward to the present:  SATS handled about 54 million passengers and 1.8 million tonnes of cargo last year at Changi Airport alone.

The growth of the company mirrors the growth of aviation in the region and will continue to be so in the near future.

It was listed on the SGX in 2000. Post-listing Singapore Airlines still owned 81% of SATS and managed it as a wholly owned subsidiary until 2009, when it divested its stake by way of in-specie dividends. The following year the company changed its name to SATS Ltd.

SATS has grown along with its business partners: Singapore Airlines and Changi Airport

SATS has been shaped by the demands for service excellence from its business partners: Singapore Airlines and Changi Airport Group. For its part, SATS evolved to deliver to the partners’ expectations and is credited with a role in their award-winning service and efficiency.

SATS has parlayed its operational excellence into several complementary ventures. Aviation, however, accounts for 85% of the company’s revenues.

Given its excellent track-record at home, SATS is a much sought after joint-venture partner and is present at over 60 airports in the region. Outside its core business, SATS has parlayed its operational expertise into several complementary ventures. Besides its substantial freight handling business, it operates an eCommerce AirHub for sorting mail and packages; a Coolport for perishables; manages the Singapore Cruise Center in partnership with Creuers and has several joint-ventures in food production and distribution. Aviation, however, accounts for 85% of the company’s revenues.

SATS profits powered by productivity as revenue remains flat

Revenue at SATS has been flat since 2013 mainly because overcapacity forced airlines to cut back their spending. In spite of external headwinds, SATS underlying profit increased an impressive 29% over the same period. The increase in profits is primarily due to higher productivity as borne out by the 11% increase in the value-add per employee; no doubt, achieved in part through the use of automation and technology.

SATS seeks acquisitions to grow its revenue while relying on productivity to improve margins. Their savvy deal-making combined with their operational excellence has delivered steady returns.

While SATS relies on productivity to improve the bottom line, it looks for acquisitions to grow the top line! Typically it eschews big, flashy deals in favor of low-risk, earnings accretive investments. To this end, the company is constantly scouting for opportunities and inks several deals every year. Their savvy deal-making combined with their operational excellence has delivered steady returns for shareholders.

Looking ahead to better earnings

Looking ahead, the outlook for the company is bright with several new projects coming online. The most significant of which is their joint venture with AirAsia’s ground-handling subsidiary Ground Team Red Holdings Sdn. Bhd. The new venture gives SATS access to ground-handling operations at all the major airports in Malaysia including Kuala Lumpur, Penang, Kuching and Kota Kinabalu.

Contributions from the new business are but one positive. Several existing businesses too are poised to perk up: Changi Airport Terminal 4 is likely to see an increase in passengers as is the number of ships calling at Marina Bay Cruise Centre; and the year will see maiden contributions from the central kitchen in Kunshan, China. Elsewhere, SATS will be ramping up operations at its air cargo terminals in Dammam, Saudi Arabia; Muscat, Oman; and Mumbai, India.

SATS on a steady upward trajectory

And, therein lies the merits of investing in SATS. Apart from the tailwind it enjoys from its partner airline and airport at home, it has multiple engines of growth propelling the company on a steady upward trajectory. While its shares trade at high multiples to its earnings, SATS rewards investors with regular dividends and could prove a good investment in the long-haul with nary a hint of turbulence.