Can SATS stay on top of the world in 2016?

Airport traffic is skyrocketing, and a JV is on the cards.

With around 80% of market share in Changi Airport providing gateway services and food solutions to airlines, SATS is a key beneficiary of strong Changi Airport traffic growth in the first two months of 4QFY16, according to a report by OCBC.

Singapore Changi Airport recently revealed encouraging traffic numbers as January 2016 and February 2016 passenger throughput jumped 10% and 11.7% YoY, respectively. The traffic was driven mainly by growth in Chinese visitor arrivals.

Correspondingly, commercial aircraft movements at Changi Airport also grew 4.8% (as at January 2016) and 7.7% (February 2016).

SATS is poised to enjoy this uptick in traffic even beyond the first two months of 4QFY16 as well if the rebound in Chinese tourism to Southeast Asian countries continues to sustain.

Meanwhile, SATS has been continuing its overseas expansion strategy. SATS recently announced a joint venture with Oman Air SAOC (Oman Air) for cargo handling at Muscat International Airport.

The JV deal will see Oman Air transfer its cargo handling business and related assets to the JV company, which SATS will pay around $22.5m for 33% stake in it. The new JV will become the single source provider of cargo handling services first at the existing cargo facility , and subsequently at the new cargo terminal in Muscat International Airport.

SATS management further noted there are opportunities to develop cold-chain handling capabilities, which usually confirmed higher margins for its cargo business.

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