The earnings bonanza rolls on in Singapore. As with any earnings season, it’s worth investors’ time to look towards parts of the stock market that may see an unfolding recovery.
In this environment – despite all the negative headlines on inflation and interest rates – the travel sector is experiencing a rebound.
As my colleague, Billy, pointed out in his recent article, there are certain Singapore stocks benefitting from this “revenge travel”.
One of these stocks is airport services and food solutions providers SATS Ltd (SGX: S58).
The company reported its first-quarter fiscal year 2023 (FY2023) earnings – for the three months ending 30 June 2022 – last Friday (25 July).
So, here’s what investors should know about its latest numbers and one chart that really highlights how SATS can benefit from this travel rebound.
Revenue and costs surge for SATS
For the first quarter of FY2023, SATS saw its revenue surge by 36.2% year-on-year to S$375.7 million. That figure was up just shy of S$100 million as the travel recovery continued apace.
However, that optimism was tempered by the fact that expenditures in the period increased at a faster pace – up 50.6% year-on-year to S$409.8 million.
That resulted in a loss attributable to the owners of the company of S$22.5 million. Partially down to a reduction in government reliefs, this loss was also compounded by a big increase in the headcount of SATS.
SATS ended the most recent quarter with 14,600 employees. That was up 33% year-on-year from the 11,000 in Q1 FY2022.
But travel trends pointing in right direction
However, on the whole, the trends that SATS are seeing seem to be pointing in the right direction.
In terms of the numbers in its first-quarter earnings, SATS saw positive numbers across the board – from flights handled and meals served to passengers handled and cargo tonnage (see below).
Perhaps the biggest positive number came from passengers handled in the most recent quarter. This came in at 9.7 million, up a whopping 951% year-on-year as Singapore returns to normalcy.
Even in second quarter of 2022, the number of passengers handled by SATS nearly doubled on a quarter-on-quarter basis.
Source: SATS Q1 FY2023 earnings presentation
Earnings to grow along with travel
So, how does the travel recovery look from a global perspective. In that sense, the International Aviation Travel Association (IATA) says that passenger traffic will reach 83% of pre-pandemic levels by the end of this year.
Meanwhile, it also foresees global cargo volumes hitting a record high of 68.4 million tonnes in 2022.
So, for SATS, while there was a loss in its most recent quarter, the outlook for it overall earnings in the next few quarters continues to be bright.
That’s because the increase in revenues for airport services operators tends to lag the rise in costs (as operators like SATS hire more people to meet increased demand).
As the growth in costs start to normalise – or flatten – in the coming quarters, then revenue growth could start to outstrip costs as the travel recovery continues its ascent.
Solid financials and positioned for growth
Overall, it was a solid quarter for SATS, despite the headline numbers of a net loss. The company continued to have a solid net cash position of S$252 million as at the end of June.
With the rise in headcount and the ongoing recovery of Singapore as both a regional and global aviation hub, the future of SATS over the next six to 12 months continues to be bright.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.
