SATS is a SGX stock which I have always admired because of its historically strong business performance. The company is a leading provider of gateway services and food solutions, with the major bulk of business mainly in the aviation sector. Recently, the share price of SATS experienced a loss of form. What is the situation? Has the management lost the plot?
Since the announcement of the 1QFY2018 financial results in 21 July 2017, the share price experienced a major bout of decline. From $5.10 to $4.60, there was a drop of almost 10%. Technically, this represented a correction for SATS share price. It is only lately that this counter started to recover and climbed to $4.77 on 3 November 2017.
It appears to me that investors had decided to punish this counter for delivering quarterly profit of $57.3 million in Q1FY2018, a decline of 10.6% compared to prior year. But I think it is not justified because in the previous year, the profit was bolstered by the sale of the Senoko plant, which provided a non-operating gain of $9.3 million.
In fact, SATS performance should be considered resilient because current quarterly results excluded one-off items like disposal of assets. Revenue and operating profit remained flat, at $426.5 million and $53.5 million respectively.
The operating environment continued to be challenging for SATS because it is in the mid-level value chain. As a service provider to the airlines, it faces price pressure from airlines. Thus, if the airline industry suffered from low yields, business will be affected as well. Take for example, the operating margin has shrunk 0.3 percentage points to 12.5% for the current quarter.
With a market share of 80% at Changi Airport, SATS’ main competitor is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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