SATS is Asia’s leading provider of food solutions and gateway services with 13,000 employees in over 55 locations and 33 countries across the Asia Pacific, UK and the Middle East. SATS is part of the STI with a market cap of almost S$5bn as of 5 April 2022.
Singapore reopens. The Singapore government announced on 25 March 2022 that all vaccinated travellers can enter Singapore without quarantine from the first of April. Travellers will no longer be required to take only designated flights to enter Singapore quarantine-free, and will not have to take the antigen rapid test (ART) within 24 hours of arrival. This latest round of easing will make travelling as seamless as it was before the pandemic.
Twin engines of growth. SATS has a dominant 80% share of inflight catering and gateway services at Changi Airport and a strong presence in regional airport hubs in key Asian cities, and would thus benefit from the recovery of air travel. Furthermore, SATS has diversified into non-aviation businesses such as central kitchens, which should provide another venue of growth while its main business recovers from the pandemic-induced slump.
Inflection point. Overall international traffic in Asia Pacific so far remains at -88% of 2019 peaks, compared to -42% for North America and European international traffic. However, reopenings in the region (except for major countries like China and Japan) should start to accelerate going into 2Q2022 with more governments announcing relaxation of restrictions. According to a report by Pacific Asia Travel Association (PATA), international visitor arrivals into Asia is forecasted to jump by 100% between 2022 and 2023
Positive consensus estimates. There are 5 BUYS and an average 12m TP of S$4.79, implying a return of 9% from the last close price. SATS trades at 156x FY2022F P/E and 44x FY2023F P/E (YE March). While expensive on a headline P/E level, investors may accord a premium to SATS given the strong balance sheet and positive earnings growth going forward.
