Singapore-listed gateway and food solutions provider SATS could have a fantastic year ahead considering the robust performance indicators of Changi Airport.
According to OCBC Investment Research analysts Eugene Chua and Low Pei Han, Changi Airport recorded an 8.1 percent year-on-year growth in passenger throughput in November 2017, with aircraft movements rising by 4.8 percent and air freight movements soaring by 10.7%.
Chua and Low said Changi Airport's year-on-year growth remained strong across all categories for the period of January to November 2017 – passenger throughput (+6.3%), aircraft movements (+3.6%) and air freight movements (+8.1%).
"As highlighted before, strong traffic growth at Changi Airport is positive for SATS as we estimate SATS to handle close to 80% of the traffic throughput there," the two analysts said.
Additionally, the opening of Terminal 4 on October 2017 provided a long-term boost for traffic growth at Changi Airport, which will ultimately be beneficial for SATS given its position as the airport's dominant ground handling provider.
"That said, it remains unclear whether the pressure on yields faced by airlines will be translated to pricing pressure for SATS," the two said.
Meanwhile, Chua and Low took note of SATS' efforts to diversify out of Singapore and into non-aviation business, which could spur growth for the group over the longer-term.
The two analysts are positive with SATS partnership with AirAsia, as this opens up opportunities for it to reach the markets of Indonesia, Philippines, and Thailand.
SATS deal with Wilmar is also an upside, enabling it to leverage on the agribusiness' distribution in China.
"In addition, we also like its potential partnership with Turkish Airlines to provide in-flight catering services to THY and other airlines at Istanbul New Airport," the two analysts said.