Why staff costs will haunt SATS despite automation efforts

The group is bracing for an uptick in staff costs.

Even if SATS enjoyed a 4.9% uptick in its net earnings to $62.3m, its profit might still get badgered as with additional staff costs in the future as the group is in need of additional skill personnel for its venture on automation.

According to CIMB analyst Lim Siew Khee, SATS's total operating expenditures rose 1.4% QoQ to $375m, with staff costs treading lower Q0Q at 1.5%.

"Management indicated it still expects a slight upward trend for FY16, as more skilled personnel are hired to operate automation," the analyst noted.

With this, Lim from CIMB said a 2% annual increase in staff cost is possible.

Earlier this year, news reported that SATS is going all in on its automation efforts as it tries to reduce reliance on manpower and lead to improved operating leverage. In a previous report by UOB KayHian, it is stated that ATS’ capex rose by $13.6m as it invested in automation and an e-commerce mail back facility.

“SATS cited examples such as dishwashers which will reduce the reliance on labour, as well as more energy-efficient chillers which also contributed to the decline in utilities expenses,” UOB Kay Hian said.

Meanwhile, SATS also intends to replace staff with automation which could increase its operating leverage amid wage pressures and potentially boost earnings growth.