SATS reported its Q1 FY22 Business Updates on Thursday, 22
July. SATS is a company that I’ve been following closely, and this article
summarises my takeaways from the business updates provided.
Key Operating Statistics
SATS shared a number of key operating statistics, including
number of flights handled, meals served, passengers handled, cargo tonnage and
total number of employees. These operating statistics include SATS and its
subsidiaries, but exclude JVs and associates. In their business updates, SATS
had only provided figures for 5 quarters from Q1 FY21 (Apr to June 2020) to the
latest quarter Q1 FY22 (Apr to June 2021). Given that Covid-19 had already
resulted in a decline in air travel from early 2020, I have added in two more
prior quarter’s of SATS’ operating metrics for a more meaningful comparison. Q1
FY21 coincided with the peak of the lockdown in Singapore, while Q4 FY20 was
already impacted by a slowdown in aviation volumes. Q3 FY20 would represent
pre-Covid operating statistics.
Number of Flights handled is still way below pre-covid
levels, even though air travel in other parts of the world have largely
recovered. For instance, airlines in the US are actually unable to keep up with
demand due to the shortage of workers, leading them to cut flights. SATS’ disadvantage
here is that Singapore does not have a domestic air travel market, unlike
larger countries. On the positive side, SIA, which is SATS’ largest customer, recorded
a 13.7% passenger load factor for April 2021, up from 4.6% in April 2020. SIA
aims for 32% of pre pandemic capacity by July 2021.
The cargo segment continues its recovery, and SATS noted
that global air cargo volumes has risen beyond pre pandemic levels.
SATS has also drastically reduced their workforce, from around
17,000 employees pre pandemic to around 11,000 employees in the latest quarter.
Staff costs remains SATS’ largest operating expense, accounting for around 42% of
group expenditure.
Q1 FY22 Revenue Mix
One of the positives is that SATS has continued to diversify
their revenue base beyond the travel sector, with 46% of Q1 FY22 revenue coming
from its non travel related businesses. SATS’ non travel businesses include
commercial catering, with SATS being one of the caterers for individuals under
quarantine in Singapore.
Q1 FY22 Financial Performance
SATS reported Q1 PATMI of $6.4m, profitable for the second
consecutive quarter. Govt reliefs continue to provide support to SATS’
financials, as SATS received total govt reliefs of $45.5m for the quarter.
Without this, SATS would have reported a PATMI loss.
On an EBITDA basis, SATS has reported four quarters of
positive EBITDA since Q2 FY21, recording negative EBITDA of 33.9m only in Q1
FY21, when travel restrictions were the strictest.
Free cash flow, defined as net cash from operating
activities less cash capital expenditure, was a positive 7.9m for the quarter.
As of 30 June 2021, SATS had total debts of 726m, a reduction
of 147m from the previous quarter as a 150m term loan had been repaid. If
rights of use liabilities were excluded, total debt would be 531m instead.
Compared to a cash position of 753m, SATS is in a net cash position of 222m.
Debt to equity ratio stood at a manageable 34%.
Conclusion
SATS remains my preferred pick for betting on the recovery
of the aviation sector, due to its cost structure being more variable as
compared to airlines. Airlines face high capex requirements as contracts with
manufacturers require them to continue taking delivery of aircraft even when
business has slowed. Ongoing maintenance costs and fuel costs are also
significant. Whereas SATS has proved to be extremely nimble in cost reductions
to minimise losses. Tellingly, despite the huge drop in passenger numbers due
to Covid-19, SATS remains in a net cash position with a reasonable gearing
ratio of 34%, and has not required any rights issues to raise funding.
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Disclaimer: This article is intended for informational and discussion purposes only, and do not constitute financial advice. When in doubt, please contact a licensed financial adviser.
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