SINGAPORE - Mainboard-listed aviation cargo and food specialist Sats is on the comeback trail, after expanding its scale of operations, aggressively recruiting staff and boosting capacity since 2022 as Covid-19 receded and planes started taking to the skies again.

The burst of activity includes a late-2022 purchase of European air cargo player Worldwide Flight Services (WFS), making the combined company the world’s biggest air cargo operator with a presence in virtually every continent.

Sats chief executive officer Kerry Mok said the acquisition equipped Sats with the capabilities and global heft to sew up partnerships with cargo operators, capitalise on global e-commerce and pharmaceutical supply chains, position for the recovery of China, and chase new opportunities in food services and technology worldwide.

“With the integration (with WFS) now complete, we are focused on building up our two engines of growth, namely maintaining market leadership at our Singapore hub, and growing our cargo handling operations and other operations globally, especially in hub airports.”

Sats, which controls over 80 per cent of ground operations at Changi Airport, financed its $1.8 billion acquisition of WFS via a rights issue of almost $800 million, a three-year euro-denominated term loan of approximately $700 million and cash. Enterprise value for the acquisition at the time was about €2.23 billion (S$3.23 billion).

Mr Mok said the Sats-WFS integration progressed “faster than expected”.

“Many of the WFS country teams were excited by the fact that, instead of being owned by a private equity firm, WFS would now be owned by a reputable aviation services player. Over the past year, we have managed to integrate the teams and develop a seamless corporate culture.”

He said most of the key WFS staff and management have remained with the new combined platform. The most prominent departure was that of then WFS CEO Craig Smyth in May 2023. Following Mr Symth’s departure, all new reporting lines were subsequently directed to Mr Mok.

Speaking exclusively to The Straits Times, Mr Mok addressed the issue of the massive debt the company had taken on to buy WFS – a concern which had sent Sats’ share price plunging just after the merger was announced and prompting analysts to downgrade the stock.

He said the company was managing its gearing well and the debt would be paid down over time. He added that the $700 million financing at a fixed 4.5 per cent rate had enabled his company to keep its financing cost low and predictable. Meanwhile, Sats has restructured the liabilities of WFS, saving the group about $40 million in interest payments.

Meanwhile, its US$500 million (S$670 million) fixed-rate senior unsecured notes launched in January at 4.828 per cent in US dollar interest rate had been converted to a euro-denominated loan at 3.498 per cent, thus achieving almost $9 million in interest savings on these bonds.

Mr Mok added that the issue, which has been oversubscribed 3.6 times, has given Sats both financial flexibility and visibility in the global debt market.

“It has attracted a lot of interest from potential lenders and investors. Funds are also looking at us differently. This has opened up pathways for Sats to bring in new and different investors.”

Going forward, the company sees a continuing recovery in its core cargo handling business.

“As you know, cargo growth turned positive for the first time in August 2023, and in November, cargo growth was 8.3 per cent,” Mr Mok said. “We are now seeing 90 per cent of pre-Covid aviation capacity back on stream. The operating environment has improved significantly.”

Analysts see Sats potentially benefiting from a noticeable shift in sea cargo to air shipments amid rising geopolitical uncertainties.

In recent reports, CIMB and UOB Kay Hian noted that the unfolding of the Red Sea crisis could see demand for air cargo increase as maritime routes face disruptions from shipment delays.

Mr Mok said: “In cargo shipments, you never know where the next crisis will emerge. Air cargo gives more certainty in times like this, and we definitely stand to benefit from the shift (of sea cargo to air).”

The company is also growing its downstream capabilities to capture more market opportunities, especially in food services and food technology areas.

It has tied up with global cargo specialists like Kuehne+Nagel and Japan’s Mitsui to strengthen its logistics and supply chain footprint. Mr Mok said the partnership with Mitsui could open up a huge opportunity for Sats to enter the Japanese market for quick-heat ready-to-eat frozen foods. Mitsui controls the 7-Eleven 24-hour retail franchise’s logistics chain in Japan.

“If we can crack the Japan retail market with Mitsui, it will be a big break,” he added.

Indeed, food services and technology is an area where Mr Mok sees huge potential for Sats.

The company has been using its food technology capabilities to scale up its central kitchen operations, not just in Singapore but also in offshore regional markets, including India and China.

In recent years, it has also used its central kitchen capabilities to move into downstream operations, such as its joint venture pasta restaurant franchise Twyst.

Twyst – which has 70 per cent equity investment from Sats and 30 per cent by young entrepreneurs – currently runs seven outlets in Singapore, and is planning to expand into regional markets like Malaysia and the Philippines.

Mr Mok said ventures, like Twyst, were Sats’ platforms to test new markets, products and ideas, and to work with fresh young talent.

With activity picking up on various fronts, sequential growth has started showing.

After posting a first-quarter loss of $29.9 million for the three months ended June 30, 2023, the company posted a profit of $22.2 million during its second quarter ending September 2023.

Third-quarter results, due later in February, are expected to be strong.

Bloomberg consensus estimates put Sats’ full-year profit to March 31, 2024, at $84 million, rising to $194 million in financial year 2025.

Mr Mok said the key priorities for Sats in the coming year would be debt repayment, reinvestment in capital expenditure and reinstatement of dividend payments.

“We have turned the corner. Having completed the integration, we are now investing in automation, especially in our food production. The next step is execution. We need to move up the value chain to provide solutions, rather than just services.”

As for dividends, he added: “I would tell investors to be patient. Dividends will come. Let us get the platform right. So just bear with us.”

Indeed, Sats’ resurgence appears to be catching the attention of the market. Recently, Moody’s Investors Service gave the company an A3 debt issuer rating. This means Sats is a stable company, which is unlikely to default on its borrowings.

Mr Mok sees this as affirmation of his team’s successful efforts to turn the company around.

“It reflects confidence in our business model and Ebitda growth. Maintaining this investment grade is very important. It attracts investor attention to who we are.”

Ebitda refers to earnings before interest, tax, depreciation and amortisation.

The question is whether the market will recognise and reward Sats for its achievements. The company’s shares are still stuck far below its pre-Covid-19 levels.

As one seasoned analyst told ST, it is about time the performance of Sats’ shares caught up with that of its primary client and former controlling shareholder – Singapore Airlines (SIA).

“SIA has been flying high lately, so hopefully Sats can play catch-up,” noted Mr Linus Loo of Lim & Tan Securities.

Analysts have a 12-month price target of $3.20 to $3.40 on Sats’ stock.

The stock has been hovering between $2.70 and $2.80 in recent weeks. But if Mr Mok and his team continue growing their company on its current trajectory, the shares could head towards analysts’ target.