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SATS, whose 'digitalisation' is underway, grabs top spot; Silverlake Axis beats peers on ROE

Kok XingHui
Kok XingHui • 6 min read
SATS, whose 'digitalisation' is underway, grabs top spot; Silverlake Axis beats peers on ROE
SINGAPORE (Sept 16): SATS, which provides gateway services and catering to the aviation, hospitality, healthcare, freight and logistics, and government sectors, was the runner-up in the 2018 services sector of the Billion Dollar Club. It was edged out by
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SINGAPORE (Sept 16): SATS, which provides gateway services and catering to the aviation, hospitality, healthcare, freight and logistics, and government sectors, was the runner-up in the 2018 services sector of the Billion Dollar Club. It was edged out by a hair’s breadth by Silverlake Axis.

However, SATS powered ahead this year to not only take the overall sector winner title, but also grab the top spots for two out of the three categories: highest three-year shareholder returns, and highest three-year growth in profit after tax. Its Environmental, Social and Governance score is just below SIA Engineering’s, further lifting its overall score.

For the three years for which earnings growth was evaluated for this year’s BDC, SATS’ bottom line grew at a compound annual growth rate of 10.1%, beating out the other companies classified under the services sector. SATS’ share price during the period outperformed its sector peers as well: The company generated a CAGR of 9% in shareholders’ returns. For its financial year ended March 31, 2015, the company reported earnings of $195.7 million. By FY2018, it had grown to $261.5 million.

Nonetheless, like many other companies, SATS is facing the effects of a weaker economic outlook. For 1Q ended June 30, 2019, it reported a 5.8% rise in revenue to $465.1 million. Earnings, however, dropped 14.4% y-o-y to $54.7 million, on higher costs.

In a bid to mitigate rising manpower and other operational costs, SATS has been investing heavily in new technology, as part of its company-wide efforts to “digitalise” its operations. In March, the company unveiled a new $25 million kitchen with technology that can preserve nutritional quality and optimise taste while extending the shelf life of prepared food. The technology includes an automated rice line; auto-fryers that can cook about 120kg of rice or noodles in an hour; and a thermoforming packing line.

SATS expects the new kitchen to help it manage growth sustainably, as well as deal with increasing costs from competition for talent, raw materials, energy and water.

In July, the company teamed up with Dassault Systèmes to create a 3D digital twin of a virtual kitchen that pairs virtual and physical operations to provide data-driven analytics for better resource planning. This would help the company better forecast ingredient usage in large-batch food production to reduce food wastage.

For its cargo handling operations, SATS announced in August that it was teaming up with TUMCREATE to look into commercialising the world’s first artificial intelligence-powered robotic air cargo system called SPEEDCARGO to help digitise air cargo handling and transform laborious processes for the freight industry.

SATS has also been retraining its 14,000-strong workforce so they can take on higher-skilled and redesigned jobs to support evolving business needs. The company has its own SATS Academy, which has trained over 6,200 employees, with more than a quarter of them aged 50 and above.

The company is optimistic about its long-term growth prospects. SATS expects its services to continue growing, citing projections from the International Air Transport Association of passenger traffic volume for Asia-Pacific rising 5% between 2017 and 2023, and “out-of-home” food consumption increasing 6% in the same period.

Silverlake Axis’ ROE leads

Silverlake Axis sells software and services to banks and other financial institutions, so they can better manage their operations. The company itself has proven to be savvy at making use of its capital. It generated a return on equity of 45.13% for the three-year BDC evaluation period — the second highest among all companies considered for this year’s BDC.

For its FY ended June 30, Silverlake Axis reported a 26% rise in group revenue to RM680.8 million, owing to increased contributions from both project-related and recurrent revenue segments. Its net profit attributable to shareholders increased 83% to RM245.6 million.

Silverlake Axis had last month secured a contract to assist in the digital transformation of an established consumer credit provider in Malaysia. It will be replacing the client’s legacy systems with a new platform to streamline its consumer financing process, and expects to complete implementing the new payments and lending digital platforms IntelliPayz and IntelliLendz by next year. This follows July’s announcement that Silverlake Symmetri had won four contracts to provide software upgrades, implementation and maintenance services to its core banking and card customers.

Going forward, group managing director Andrew Tan Teik Wei says while the trade dispute between the US and China may create a more cautious business environment, the group continues to receive a healthy flow of new business enquiries and requests for proposals from existing and potential customers. This is because it is a strategic partner to large financial institutions in Asia, maintaining and enhancing their mission-critical IT systems.

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Winner China Everbright Water secures more projects

China Everbright Water came up as winner in the services sector of the Centurion Club Awards, edging out MM2 Asia and Moya Holdings Asia. It scored the highest for three-year growth in profit after tax and three-year return on equity,

The company, previously known as ­HanKore Environment Tech Group, was formed after China Everbright International injected all of its water assets into HanKore to become its largest shareholder.

Besides being listed on Singapore Exchange, China Everbright Water is also listed in Hong Kong. It launched its Hong Kong public offering in April at HK$2.99 each. The company’s stock price on SGX jumped 11% after the announcement of its 1QFY2019 results. Profit improved 15.9% to HK$206.4 million ($36.3 million) on the back of higher construction revenue, which arose from the construction of several water environment treatment and water supply projects as well as the expansion and upgrading of several wastewater treatment plants.

In the last five years, HanKore’s revenue rose at a compound annual growth rate of 46%, from HK$1.1 billion in FY2014 to HK$4.8 billion in FY2018. Gross profit grew 28.5% from HK$596.5 million to HK$1.6 billion in the same period. Correspondingly, net profit rose at a CAGR of 23.3% to HK$676.5 million in FY2018.

In 1QFY2019, the company secured a wastewater treatment plant operation and management project, and a sludge treatment project. In April and May, it won four more projects with a total investment value of RMB2.8 billion ($543.3 million) that will contribute an additional daily designated water treatment capacity of 802,000m3.

In a July 19 report, DBS Group Research notes that the company’s efforts at securing more projects and pursuing its asset-light strategy is progressing well.

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