• SATS (SGX:S58)'s 2QFY21 (Jul to Sep 2020) reported net loss of S$33.2m included S$31.6m impairment of investment in an associate and a long-term investment. Excluding this, core net loss of S$1.6m beat our loss estimate of S$38m. SATS broke even at EBIT level.
• Staff costs reduced 7% q-o-q to S$89.5m with the help of higher government grants of S$77.9m (26% q-o-q), comprising training rebates, worker levy relief and the Job Support Scheme (JSS). SATS will recognise the extended JSS till Jun 21, while other reliefs could taper off slightly in the coming quarters. Rightsizing and cost-control efforts continued as headcount reduced by 500 to 13k in 2QFY21.
• With the Singapore government relief, SATS’s Singapore operations was the only profitable outfit; its Japan operations reported a quarterly loss of S$5.3m.

Cargo strength extended to associates; sustainable near term

• Losses from associates and JVs reduced by 59% q-o-q to S$12.8m in 2QFY21 (vs. our expected S$28m loss). Gateway associates turned in a 91% q-o-q improvement, with losses narrowed from S$18.3m in 1QFY21 to S$1.7m in 2QFY21. In line with Changi’s freight movement, which improved 17% q-o-q in the quarter, similar positive trend were seen across SATS’s associates/JVs across India, Indonesia and Hong Kong. This positive trend is likely to continue in 3QFY21, the seasonal peak period.

Pharmaceutical cargo growth thanks to cold chain ability

• SATS has seen a 15% y-o-y increase in pharmaceutical cargo throughput by weight in Singapore from Jan-Jul 2020. Overall perishables and pharma handling account for 30% of its cargo tonnage.
• Management alluded that SATS facilities are equipped to handle COVID-19 vaccine storage at -70 degree Celsius. SATS Coolport Singapore has an annual capacity of 250k tonnes, with 18 temperature-controlled cold rooms. Other cargo terminal in the region that are pharma-certified include Beijing Aviation Ground Services in Beijing, Transom SATS Cargo in Muscat and AISATS Coolport in Bangalore.

SATS Coolport Singapore

• SATS Coolport Singapore is a purpose-built airfreight terminal that is equipped with electronic temperature monitoring technology and cold rooms with various temperature settings to handle commodities with different temperature requirements. It has an annual capacity of 250k tonnes, but it achieved 300k in 2019. On-tarmac coolers are also available to protect temperature-sensitive cargo when it is transported between flights. Yield for perishables and pharmaceuticals are higher as the fees for cold-room cargo is 3x that of general cargo.