SATS Ltd's (SGX: S58) Second Quarter Earnings: 3 Bright Spots Amid the Pandemic Gloom
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SATS Ltd's (SGX: S58) Second Quarter Earnings: 3 Bright Spots Amid the Pandemic Gloom

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SATS Ltd (SGX: S58) is a provider of food solutions and gateway services solutions mainly to the aviation industry.

It has been hit hard by the pandemic, with the International Air Transport Association (IATA) predicting that air travel will not return to pre-COVID-19 levels until 2024.

However, from SATS’ financial results announcement for the second quarter ended 30 September 2020 (2Q FY20-21), there appear to be some bright spots amid the darkness.

And the stock market seems to recognise this.

At the time of writing, SATS shares are changing hands at S$3.84 each, up 7% so far for the day. Its share price rose to as high as S$3.94, a level not seen since early-March 2020.

Let’s dive deeper right now to look at why SATS’ latest results are not as bad as what the headline numbers show.

SATS-earnings-2Q-FY20-21 Seedly

Quarter-on-Quarter Improvement in Business Performance 

For SATS’ 2Q FY20-21, revenue came in at S$231.1 million, which translates to a 53.5% year-on-year decline.

On a quarter-on-quarter basis, though, revenue improved by 10.4% from S$209.4 million in 1Q FY20-21.

The improvement was due to better performance from both its food solutions and gateway services business segments.

By industry, both aviation and non-aviation sectors saw higher revenue quarter-on-quarter.

Revenue Breakdown2Q FY20-211Q FY20-21Percentage Change Quarter-on-Quarter
By Business
Food Solutions139.6 135.9 2.7%
Gateway Services87.871.622.6%
Others 3.71.994.7%
By Industry
Aviation126.8110.6 14.6%
Non-Aviation100.696.9 3.8%
Others3.71.994.7%
Total231.1209.4 10.4%

Moving on, SATS posted a net loss of S$33.2 million, compared to a net profit of S$60.7 million a year ago.

This was due to a sharp decline in aviation revenue and lower contributions from associates and joint ventures due to the pandemic.

However, on a quarter-on-quarter basis, SATS’ net loss narrowed from a negative S$43.7 million in 1Q FY20-21.

The improvement was largely due to the higher revenue as seen earlier, lower operating expenditure, and better performance from its associates and joint ventures.

Balance Sheet Remains Rock-Solid

As of 30 September 2020, SATS’ balance sheet had S$818.5 million in cash and short-term deposits, with S$686.2 million in total loans.

This translates to a net cash position of S$132.3 million.

It’s nice to see SATS having a strong balance sheet, which enables the company to better focus on business recovery.

The robust balance sheet also shows that the company’s management is doing a good job in managing its finances well.

To conserve cash further, SATS will not be paying out an interim dividend this time around. It said:

“In light of the significant uncertainties in our operating environment, the Board of Directors believe that it would be prudent not to pay an interim dividend for FY20-21. This will allow the company to preserve more jobs and capabilities to support our customers as aviation volumes resume, and to pursue opportunities outside of aviation.”

In my opinion, not paying any dividend when the company is going through a rough patch is a responsible thing to do. SATS didn’t pay a final dividend for FY19-20 as well.

SATS Has Capabilities to Handle COVID-19 Vaccines 

Looking ahead, SATS said that challenges remain as flight and passenger volumes are still heavily constrained by travel restrictions.

However, the demand for air cargo continues to be robust.

More specifically, SATS saw a 15% year-on-year increase in pharmaceutical cargo throughput by weight in Singapore from January to July 2020.

This can be attributed to its capabilities to handle pharmaceutical goods at extremely low temperatures. It explained:

“SATS, with its leading cold chain capabilities and protocols, is also ready to assist airlines, shippers and forwarders in the distribution of COVID-19 vaccines across its network of certified pharma-handling cold chain operations, once the vaccines become available.”

SATS Coolport in Singapore, Beijing Aviation Ground Services in Beijing, Transom SATS Cargo in Muscat, and AISATS Coolport in Bangalore are all IATA CEIV Pharma certified.

IATA CEIV Pharma stamp

The industry-wide standard means that SATS meets the standards, regulations and guidelines expected from pharmaceutical manufacturers to transport vaccines, including the COVID-19 vaccine by Pfizer and BioNTech.

According to news reports, the vaccine needs to be kept at -70 degrees Celsius.

Want to Discuss Further?

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the company mentioned. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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