SATS’ revenue surges 32.3% to S$424.2m in 2Q12

Net earnings fell 11.3%. SATS Ltd's 2Q12 PATMI fell 11.3% YoY to S$40.1m. The fall in PATMI was due to (1) a decline in the share of profits of associated & JV companies of 16.4% YoY to S$13.3m, and (2) the early retirement of a sale and lease back arrangement that created a divestment loss and caused a higher tax rate as a result of the writing off of related tax assets.

Although SATS sold its U.K. subsidiary Daniels after 2Q12 on 25 Oct 2011, its 2Q12 financials had excluded Daniels' contribution, except for a single line item of loss from discontinued operation.

Excluding Daniels, SATS revenue grew 32.3% YoY in 2Q12, with 77% of this growth contributed by its Japanese subsidiary TFK, which was only acquired in 4Q11.

Turnaround at TFK, but associates are less profitable.
Boosted by higher volumes, SATS revenue in 2Q12 recorded good organic growth of 10.2% and 6.1% in its Gateway Services and Food (excluding Daniels and TFK) segments, respectively. In addition, TFK turned in an operating profit of S$1.8m, from the operating loss of S$6.5m in 1Q12.

TFK's strong showing in 2Q12 was a result of volumes recovering after the Mar 2011 Japanese earthquake and a seasonally busier 2Q. However, share of profits of associated & JV companies fell, after SATS' associates experienced flattish cargo volumes during the quarter.

Outlook is uncertain but may have positive surprises.
Management warned that the uncertain global economy could pose challenges to the aviation industry. In addition, inflationary pressures are expected to last at least a few more quarters.

But there are also positives for SATS such as (1) its Hong Kong subsidiary SATS HK recently won a key new business from Hong Kong Airlines, (2) the imminent announcement of the exclusive operator at Singapore's new International Cruise Terminal, which SATS is one of the bidders, and (3) Aircraft Service International Group (ASIG), the third and newest ground handling licensee at Changi Airport, has not made much headway in taking over contracts from the incumbents.