SATS is seeking to build scale and connectivity in Asia which will have the fastest growing aviation market and extensive food requirements.
On Oct 19, the group announced it will be providing inflight catering services to Turkish Airlines along with other airlines at the new Istanbul Airport.
See: SATS to provide catering services to Turkish Airlines at Istanbul airport
Although Turkish Airlines has limited connectivity in Asia, the flag carrier can leverage on SATS' exposure to Singapore, Malaysia, Maldives, Taiwan, the Philippines, Indonesia, India, Hong Kong and China, says the provider of airport gateway services.
The group also says that the new Istanbul Airport and the Kitchen will be the world’s largest if the deal goes through and Turkish Airways will have a 50% share in the joint venture.
In addition, the group on Oct 30 announced it is partnering AirAsia to serve customers at Changi Airport’s new Terminal 4 by forming a new ground handling entity, SATS Ground Services Singapore (SGSS).
SGSS is 60% owned by SATS and 40% owned by AirAsia.
See: SATS partners AirAsia to grow ground handling business across Asean
In a Thursday report, analyst K Ajith says that this partnership will give SATS scale in Malaysia as AirAsia accounts for one third of Malaysia’s seat capacity across 16 airports.
“However, our analysis shows that if AirAsia’s associates are taken into account which is part of the JV agreement, the group will have a share of almost 50% seat capacity out of Malaysia,” says Ajith.
SATS also indicated that the AirAsia group accounted for 50% of the current seat capacity out of T4 and thus was seen as a logical partner.
There have been worries among the clients of SATS that the regional expansion could dilute its overall ROE of 17%.
But SATS says the expansion takes into account cost of capital -- rather than ROE -- and that they have placed a higher hurdle rate for overseas operations compared to domestic ones.
Although SATS declined to provide details on the hurdle rate, it noted that sustainable return on capital could be lower than current returns.
As at 10.25am, shares in SATS are trading 4 cents lower at $5.20 or 3.4 times FY18 book with a dividend yield of 3.9%.
