Will the slowdown in the aviation sector badly hurt SATS?

August's traffic growth at Changi Airport fell 0.6% YoY.

With around 80% of market share in Changi Airport providing gateway services and food solutions to airline, SATS revenue from Singapore is correlated to traffic handled at the airport. Hence, a drop in the airport's traffic growth by 0.6% YoY in August maybe bad news for SATS.

OCBC Investment Research however notes that SATS may find respite from its non-aviation business segment.

"In our view, SATS’ on-going plans to diversify out of Singapore and away from reliance on the aviation industry will take time to bear fruit, and unlikely to see material results in the near-term. However, we note that its focus to continuously drive productivity improvements is already bearing fruits and we expect such improvements to continue, albeit at a slower pace," said Eugene Chua, analyst at OCBC.

In anticipation of increased demand with terminal 4 and 5 targeted to open in 2017 and mid-2020s, respectively, Chua also said that SATS is also making an S$18m investment in new production line that will increase capacity by 15% to 115,000 meals a day by mid-CY17 and will enable mechanisation of up to 50% of certain kitchen operations.

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