SATS share price: what to watch out for its Q1 results

Singapore-headquartered SATS Ltd, is a provider for food catering and airport gateway services. The group is expected to announce its first quarter results ended June 30, 2019 next Thursday (July 18, 2019), after local market trading hours.

Listed on the Singapore Exchange in 2000, the 70-year-old business currrently serves 14 regions, information from its website says. Its gateway services business include airfreight handling, passenger services, baggage handling, and aviation security services while it counts catering for airline, institutional, and remote as part of its food provision business.

Shares of SATS have gained 14 Singapore cents since the start of this year and is now trading at S$5.32 as of Thursday morning, at S$5.97 billion in market capitalization value.

Fall in net profit for Q4, due to absence of one-off gains

In May, the group posted a 23.7% decline in net profit for the fourth quarter, at S$49.9 million, compared to S$65.4 million a year ago. The decline was mainly due to the absence of one-off gains a year earlier, which included a S$2.3 million gain from the disposal of assets related to SATS' Japanese unit TFK Corp.

Revenue for the quarter gained by 11.3% to S$471.5 million, supported by higher contributions from its food solutions and gateway services businesses.

The group posted a 6% increase in revenue for the full-financial year ended March 31, 2019, at S$1.83 billion.

For the fourth quarter, earnings per share was at 4.5 Singapore cents, compared to 5.9 Singapore cents in the same period a year ago.

The board had recommended a final dividend of 13 Singapore cents, an increase from the final dividend of 12 Singapore cents a year ago. Including an interim dividend of six Singapore cents, total dividend stood at 19 Singapore cents per share.

Healthy dividend yield a reflection of business growth

As of the closing price of S$5.23 on Wednesday (July 10, 2019), SATS has a dividend yield of 3.6%.

Looking at SATS’ dividends history, the firm has been increasing in its dividend pay-out steadily over the last few years. In 2014, it started off with 13 Singapore cents and the amount has been increasing annually, to 19 Singapore cents in its recent pay-out.

On a five-year comparison, SATS’ net profit grew from S$195.7 million in the financial year 2014-2015 to hit S$248.4 million in the financial year 2018-2019, reflecting an annualized growth of 6%.

The healthy dividend and improvement in net profit on a five-year comparison reflects the firm’s growth in lieu of the rising tourism numbers in Asia and the growth in demand for aviation services and high-quality food in the Asia-Pacific region.

Return-of-equity performance a key indicator to watch out for

A return-of-equity (ROE) indicator measures the financial performance of a firm. It is calculated through dividing the net income by total shareholders’ equity. A higher ROE reflects higher returns for investors for every dollar of capital invested.

For SATS, it posted a 13.7% ROE in the financial year 2015, and subsequently in the following years of 2016 and 2017, ROE was at 15.0%, and 16.7%, respectively. Since 2018, its ROE has eased. In 2018, ROE was at 16.2% and in 2019, it was at 15.1%.

The ROE for the fourth quarter was at 3.1%, and this indicator will be something to watch out for and to compare with over the past results in the upcoming first quarter numbers.

Focusing on the airline catering and ground handling business

On Tuesday, the firm said it divested its 51% stake in Food and Allied Support Services Corporation, a health-care food business for a sum of S$1.02 million, as it plans to put all its resources on the airline catering and ground handling space, as well as on supplying the growing food service chains in large cities in Asia.

The business it divested, is based in the United Arab Emirates.

In March this year, SATS unveiled a S$25 million kitchen facility, saying that the new location will help boost the group’s overall food production by 14%.

Based on data received in March this year, SATS produces 170 million meals a year in over 35 locations in Asia.