SATS eyes over $1b in capex and investments from FY20-22

This means that SATS may shell out $333m annually on average during the three-year period.

SATS is targetting about $1b of proposed capex and investment over the next three years to increase its APAC aviation presence in catering and air cargo market, to become the leading central kitchen supplier in specific APAC markets, and to develop travel retail.

“This implied $333m average per year is around 2.5x the $136m average of the past five years. Management believe that Asian aviation catering market is poised for consolidation driven by airline-affiliated caterer divestments and a growing pool of long shelf life food producers driven by food technology development,” Maybank Kim Eng said in a report.

In addition to the planned investments, Maybank KE noted that SATS could cash in from the relatively new central kitchen business in China, after its first non-aviation central kitchen development in Kunshan with the Wilmar Group in early 2017 achieved operating breakeven a few quarters ahead of plan.

“SATS is planning to expand its total production capacity in the Beijing-Tianjin-Hebei area from 70,000 meals/day to 200,000 meals/day, whilst its kitchens in the Yangtze River Delta currently have a capacity of 120,000 meals/day,” the report explained.

The research firm also noted that SATS TFK, the in-flight catering firm’s Japanese subsidiary, saw revenues stabilise from late-2017 and grow at low-to-mid single digits. “Indication from management of some possible capacity addition suggests that the prior oversupply situation at Haneda and Narita airports is on the mend. We expect TFK’s performance should improve further from traffic growth leading to the 2020 Tokyo Summer Olympics,” the report added.

Despite a positive outlook, Maybank KE indicated that key risks for SATS would be material deterioration in airline industry fundamentals which could pump pricing pressure and increasing competition, the execution risk in SATS’ various new ventures and investments, and market risk for TFK Japan where market still has potential overcapacity risks.