We met with the management of SATS recently to get an update on the business and industry. Key takeaways:

' To the best of management's knowledge, ASIG, the third (and most recent) entrant at Changi airport, seems to be still on the lookout for its first operating contract.

' The new Marina South ICT might not change SATS' earnings profile dramatically, and should account for ~5-10% of earnings, on our estimates, from FY13F onwards, but is positive in terms of new revenue opportunities it opens up.

' SATS doesn't rule out the possibility of special dividend from Daniels disposal proceeds, or it might choose to deploy capital in other ventures.

' Cargo business might only see low single digit y-y growth in 3QFY12F.

' SATS is looking at opportunities in the Middle East (specifically Dubai) and Heathrow.

' TFK performance to moderate slightly in 3QFY12F given 2QFY12 was the peak aviation related quarter in Japan.

The new entrant ASIG has not yet impacted SATS's market share in the Changi ground-handling business

SATS believes that ASIG, the winner of the third ground handling license at Changi, is yet to secure its first operating contract ' SATS has not seen them operating at Changi so far. We note that incumbents such as

SATS and dnata, due to the full suite of services they provide (food services + ground handling, vs ASIG which is only ground handling) enjoy a long-standing relationship with their customers. We believe it is unlikely that a customer will change a service provider just on the basis of price ' these customer relationships create strong barriers to entry in the sector.

As per management, although earnings contribution from the cruise terminal might not be very material in the near term (not more than 5- 10% of our earnings estimates), it opens up a new non-airline revenue stream for the company. 

While operating the ICT, SATS would have multiple revenue channels. For instance, it can derive revenues out of handling cruise liners, as well as ancillary revenues through renting out retail space, advertising space, operating duty free shops, car parking fees etc. SATS, through its subsidiary SFI, also has a prior experience in ship chandling (dealing in special supplies or equipment for ships). SATS might later also look at providing other services like auxiliary police, and possibly laundry. (Read full report)

SATS - Turning around?