SATS

Nice graph. Really puts the recent pay cuts into perspective.

Anyway, SATS's investment merits should be easily understood by most investors. And so it (still) sells for pretty high valuations. A p/e of 20 means a return of 5%.

Investors may well make money by buying SATS, but the returns are probably not of a multibagger magnitude.

(02-03-2020, 07:49 PM)BRT Wrote:

(02-03-2020, 07:03 PM)sillyivan Wrote: Since the start of COVIT19 outbreak, SATS has dipped from ~$5.15/share to $4/share which equates to a 22% drop. Always felt that this company has one of the very best moat in the whole SGX. Detractors please feel free to air your opinions as I like constructive challenges to prevent myself from falling into false-consensus bias.

- Operating as somewhat a monopoly in its industry, its competitors are so small that it probably has about 80% of market share in APAC?
- Revenue is growing rapidly as mgmt uses M&A with leading operators in other countries
- So far Singapore is still its largest market, but in past few years, it has broken into Japan, China, a whole host of Middle Eastern countries and many others
- Also diversified its catering business out of airline industry and execution seems to be good

The travel industry will only keep increasing in years to come and what better way to play this trend? Airline stocks are far too competitive as every country will always be trying to back its national carrier. Something to do with national pride. In comes SATS working in the background to serve the travel industry.

At $4 share price, PE has fallen to 20. Dividend yield at 4.7%. I personally prefer to buy companies that are value plays (due to lower PE) however a growth company like SATS at PE 20 seems like a steal to me. Growth with sizeable dividend to boot? Even better.

Due to COVIT19, we will definitely see SATS business take a big impact in at least Q1/2020 or 1H/2020. However, do I think COVIT19 will pose a long term threat to the travel industry and SATS? I doubt. In fact, when the human race recover from this flu virus as we always do (eg. SARS & H1N1). SATS will probably come back with a vengeance as pent-up travel demand will be higher than usual in the immediate aftermath.

Near term catalysts include the Japan Olympics 2020 which will take place in July/August where SATS has invested in catering business and will benefit from the influx of Olympics travelers. Also, due to Singapore having favorable headlines of us tackling the virus with "gold-standard policies", this could give travelers higher confidence coming back compared to other countries in the region.

i spent a bit of time looking at sats yesterday and was surprised given how much it has fallen the pe is still 20. the recent run up kind of overshot itself imho. i agree with many of the qualitative points you mentioned it's just not cheap enough for me at 4. just for fun i also compiled the ceo pay n found it doubled over the last 5y. normalized on a graph so its easier to compare the trend w op profit.

Good point BRT. SATS have found it hard to keep costs down while expanding their business hence the divergence in OP vs CEO pay. It probably is pegged to the performance of the topline and scale rather than OP. On this topic, it is well documented that SATS have been pursuing R&D on using machines to replace certain workload currently done by humans which would lead to lower headcount and improve revenue generated per headcount. We will know in the near future if they succeed or not. 

Actually the share price peaked not at $5.15 but it was ~$5.85 in Jan 2018. I only used $5.15 to measure the dip purely based on COVID19. I guess Mr.Market gave SATS a higher PE deemed to be reasonable due to its monopolistic characteristics. Quality businesses always come with a premium.

(02-03-2020, 09:00 PM)karlmarx Wrote: Nice graph. Really puts the recent pay cuts into perspective.

Anyway, SATS's investment merits should be easily understood by most investors. And so it (still) sells for pretty high valuations. A p/e of 20 means a return of 5%.

Investors may well make money by buying SATS, but the returns are probably not of a multibagger magnitude.

Indeed, this is one of the companies in my portfolio which I don't expect to make a multibagger in the near term. The purpose of investing here is just to collect sizeable dividends of a beaten down company whose share price has the possibility of gaining back 20-50%. ($4 to $5.85 previous high). But who knows 5-10 years down the road? Maybe a 2-3X seems reasonable.

As long as Covid19 is not contained worldwide, the global air travel industry will continue to suffer. Look at the rate Covid19 is spreading. In a month's time, it has broken out from China to half of the world. 58 countries at my time of writing. Ironically, the air travel industry which SATS is in, has contributed this relentless spread. iMHO, we can safely say our govt has done an excellent job in battling Covid19 so far. However, our infected numbers still crossed 100 and there is still new cases daily.

Now my question is, do you think most countries govt (first world to third) and their healthcare systems can do what Spore has done, which is to take well-coordinated, swift and decisive actions? If the answer is a resounding yes, then Covid19 will be short lived, maybe eradicated by summer as some experts have pointed out. If the answer is a dismal no, then Covid19 will perhaps be a long drawn battle which may take years (not months) to play out, and it may jolly well be present in mankind forever until a viable vaccine is invented. I hope I am wrong but my thinking is more geared towards the latter answer.

At pre Covid19, SATS PE is 20x at $4. The most optimistic take is its earning will be halved, so PE will be 40x now. However, it can easily bleed money for many quarters before a turnaround of fortune. How can SATS be cashflow positive when global air traffic is not taking off? Forget about the dividends. If there's no earnings, there can be no dividends so as to speak.

SATS is a wonderful business to own. It's long term prospect is bright. Changi T5, rising middle class of S.E.A, China and India, captain of its industry, competent mgmt, strong economic moats. But at $4 in time of Covid19 crisis, is it a fair price to pay? My take is that it still has plenty of room to fall. The share price must reflect its earnings and cashflow somehow.

(03-03-2020, 01:25 AM)jfc18 Wrote: As long as Covid19 is not contained worldwide, the global air travel industry will continue to suffer. Look at the rate Covid19 is spreading. In a month's time, it has broken out from China to half of the world. 58 countries at my time of writing. Ironically, the air travel industry which SATS is in, has contributed this relentless spread. iMHO, we can safely say our govt has done an excellent job in battling Covid19 so far. However, our infected numbers still crossed 100 and there is still new cases daily.

Now my question is, do you think most countries govt (first world to third) and their healthcare systems can do what Spore has done, which is to take well-coordinated, swift and decisive actions? If the answer is a resounding yes, then Covid19 will be short lived, maybe eradicated by summer as some experts have pointed out. If the answer is a dismal no, then Covid19 will perhaps be a long drawn battle which may take years (not months) to play out, and it may jolly well be present in mankind forever until a viable vaccine is invented. I hope I am wrong but my thinking is more geared towards the latter answer.

At pre Covid19, SATS PE is 20x at $4. The most optimistic take is its earning will be halved, so PE will be 40x now. However, it can easily bleed money for many quarters before a turnaround of fortune. How can SATS be cashflow positive when global air traffic is not taking off? Forget about the dividends. If there's no earnings, there can be no dividends so as to speak.  

SATS is a wonderful business to own. It's long term prospect is bright. Changi T5, rising middle class of S.E.A, China and India, captain of its industry, competent mgmt, strong economic moats. But at $4 in time of Covid19 crisis, is it a fair price to pay? My take is that it still has plenty of room to fall. The share price must reflect its earnings and cashflow somehow.

I honestly don't see covid19's impact to be that drastic. To say "the most optimistic take" is earnings halved and PE 40x is a little too bearish in my opinion. Fear of covid19 has well been overplayed by the general public. Attached is the actual fatality rates of the covid19. For ages 0-50, it is 0.2% which compares to the common flu that has fatality rate of 0.1%. In general, anyone can recover from the virus purely based on your own immune system without the need to be in ICU. Vaccines are also expected to be ready in 3-6 months time. There are many biotech firms in the race to have the vaccine out and being first to market. Their survivability hinges on their success. In comparison, SARS has a fatality rate of 10%, and till date still does not has a vaccine for it. Impact of SARS lasted a few months and we moved on. Covid19 might be much more transmissible but it is also much less fatal.

While it is entirely possible that covid19 will be a long drawn battle that takes years, I can't say that it is the "most optimistic" at all.

(03-03-2020, 09:28 AM)sillyivan Wrote:

(03-03-2020, 01:25 AM)jfc18 Wrote: As long as Covid19 is not contained worldwide, the global air travel industry will continue to suffer. Look at the rate Covid19 is spreading. In a month's time, it has broken out from China to half of the world. 58 countries at my time of writing. Ironically, the air travel industry which SATS is in, has contributed this relentless spread. iMHO, we can safely say our govt has done an excellent job in battling Covid19 so far. However, our infected numbers still crossed 100 and there is still new cases daily.

Now my question is, do you think most countries govt (first world to third) and their healthcare systems can do what Spore has done, which is to take well-coordinated, swift and decisive actions? If the answer is a resounding yes, then Covid19 will be short lived, maybe eradicated by summer as some experts have pointed out. If the answer is a dismal no, then Covid19 will perhaps be a long drawn battle which may take years (not months) to play out, and it may jolly well be present in mankind forever until a viable vaccine is invented. I hope I am wrong but my thinking is more geared towards the latter answer.

At pre Covid19, SATS PE is 20x at $4. The most optimistic take is its earning will be halved, so PE will be 40x now. However, it can easily bleed money for many quarters before a turnaround of fortune. How can SATS be cashflow positive when global air traffic is not taking off? Forget about the dividends. If there's no earnings, there can be no dividends so as to speak.  

SATS is a wonderful business to own. It's long term prospect is bright. Changi T5, rising middle class of S.E.A, China and India, captain of its industry, competent mgmt, strong economic moats. But at $4 in time of Covid19 crisis, is it a fair price to pay? My take is that it still has plenty of room to fall. The share price must reflect its earnings and cashflow somehow.

I honestly don't see covid19's impact to be that drastic. To say "the most optimistic take" is earnings halved and PE 40x is a little too bearish in my opinion. Fear of covid19 has well been overplayed by the general public. Attached is the actual fatality rates of the covid19. For ages 0-50, it is 0.2% which compares to the common flu that has fatality rate of 0.1%. In general, anyone can recover from the virus purely based on your own immune system without the need to be in ICU. Vaccines are also expected to be ready in 3-6 months time. There are many biotech firms in the race to have the vaccine out and being first to market. Their survivability hinges on their success. In comparison, SARS has a fatality rate of 10%, and till date still does not has a vaccine for it. Impact of SARS lasted a few months and we moved on. Covid19 might be much more transmissible but it is also much less fatal.

While it is entirely possible that covid19 will be a long drawn battle that takes years, I can't say that it is the "most optimistic" at all.

People tend to compare C19 with SARS, which I think is not a fair apple to apple comparison. The transmission rate is far higher for C19. SARS infected around 8000 people, killed 800 in 8 months, hence the V shape economic recovery. C19 has infected 90,000 and killed 3000 in only 3 months, and no signs of abating. SARS mortality rate is 10%, while C19 is 0.3%. Simple maths presented, but which of the two viruses is more "lethal" to the man in the street? Because the base number of highly infectious C19 is so huge, its low mortality rate doesn't make it less dangerous than SARS. Even at 0.1% mortality rate (100x lesser than SARS), C19 would have killed 900 people in 3 months while SARS killed 800 in 8 months.  

No one on earth in the right frame of mind will plan for an overseas holiday this year until C19 is contained. I have two young kids, age 60+ parents. I know the mortality rate of C19 is low. I am in my mid 30s. I have not wear a single surgical mask since the outbreak. However, I am also mindful if I "sway sway" kena the virus, it means my family members will get it too. For the coming March school holidays, we scrapped our plans for a week long overseas holiday in exchange for a 3D2N staycation. Most holiday makers and responsible parents around the world will have more or less the same mindset as me. Despite the dirt cheap hotel and airline fares, are we making any plans for June and Dec holiday? Well, no prize for guessing it right. Corporate travels have also cut down drastically as mgmt places staff health well-being above profits. 

SATS bought over Singapore Food Industries (SFI) many moons ago. While SFI earnings is more defensive in nature (catering to army camps, schools and production of frozen food items), 85% of SATS earnings is from aviation sector. The overall net profit margin of SATS is 14%, hence any doubt digits drop in topline will have an adverse impact on its bottomline.

From SATS FY18-19 statement (do note that FY1819 figures is actually better than the current 9mFY1920 figures):

Revenue: 1828m
Expenditure: 1580m, of which Cost of Goods is 267m. 
Operating Profit: 247m
Net Profit: 256m

Assuming its aviation revenue takes a 50% hit (not an unreasonable number) and SFI earnings remains contant,
Rev: 1828m x 0.575 = 1051m
Exp: Expenditure down to 1426m as COG decrease to 153m correspondingly. Assume staffs, utilies, premises cost, etc, remain constant.
Operating Loss: -375m

Assuming its aviation revenue takes a 20% hit and SFI earnings remains contant,

Rev: 1828m x 0.83 = 1517m 
Exp: Expenditure 1546m, COG 221m
Operating Loss: -29m

SATS have announced voluntary no-pay leave for staffs. But how many people in this current economy climate will be willingly to take a long no pay-leave. Go on leave, also cannot go overseas holiday right? Double whammy for SATS. No pun intended. 

As I have said, SATS is a wonderful business to own. I was SATS and SFI shareholder, but have sold them a few years back. I am looking to buy SATS and SIAEC again. But at $4, SATS pre C19 PE ratio is at a demanding 20x, not cheap by any standards. I just can't see how SATS can squeeze out an operating profit for the next few quarters if people simply stop flying. Currently, Mr Market is still pricing SATS accordingly to its post C19 earnings in a V shape 3-6 months recovery scenario. Will C19 last more than 8 months like SARS did? No one really knows. But I certainly won't bet against it.

(03-03-2020, 12:33 PM)jfc18 Wrote:

(03-03-2020, 09:28 AM)sillyivan Wrote:

(03-03-2020, 01:25 AM)jfc18 Wrote: As long as Covid19 is not contained worldwide, the global air travel industry will continue to suffer. Look at the rate Covid19 is spreading. In a month's time, it has broken out from China to half of the world. 58 countries at my time of writing. Ironically, the air travel industry which SATS is in, has contributed this relentless spread. iMHO, we can safely say our govt has done an excellent job in battling Covid19 so far. However, our infected numbers still crossed 100 and there is still new cases daily.

Now my question is, do you think most countries govt (first world to third) and their healthcare systems can do what Spore has done, which is to take well-coordinated, swift and decisive actions? If the answer is a resounding yes, then Covid19 will be short lived, maybe eradicated by summer as some experts have pointed out. If the answer is a dismal no, then Covid19 will perhaps be a long drawn battle which may take years (not months) to play out, and it may jolly well be present in mankind forever until a viable vaccine is invented. I hope I am wrong but my thinking is more geared towards the latter answer.

At pre Covid19, SATS PE is 20x at $4. The most optimistic take is its earning will be halved, so PE will be 40x now. However, it can easily bleed money for many quarters before a turnaround of fortune. How can SATS be cashflow positive when global air traffic is not taking off? Forget about the dividends. If there's no earnings, there can be no dividends so as to speak.  

SATS is a wonderful business to own. It's long term prospect is bright. Changi T5, rising middle class of S.E.A, China and India, captain of its industry, competent mgmt, strong economic moats. But at $4 in time of Covid19 crisis, is it a fair price to pay? My take is that it still has plenty of room to fall. The share price must reflect its earnings and cashflow somehow.

I honestly don't see covid19's impact to be that drastic. To say "the most optimistic take" is earnings halved and PE 40x is a little too bearish in my opinion. Fear of covid19 has well been overplayed by the general public. Attached is the actual fatality rates of the covid19. For ages 0-50, it is 0.2% which compares to the common flu that has fatality rate of 0.1%. In general, anyone can recover from the virus purely based on your own immune system without the need to be in ICU. Vaccines are also expected to be ready in 3-6 months time. There are many biotech firms in the race to have the vaccine out and being first to market. Their survivability hinges on their success. In comparison, SARS has a fatality rate of 10%, and till date still does not has a vaccine for it. Impact of SARS lasted a few months and we moved on. Covid19 might be much more transmissible but it is also much less fatal.

While it is entirely possible that covid19 will be a long drawn battle that takes years, I can't say that it is the "most optimistic" at all.

People tend to compare C19 with SARS, which I think is not a fair apple to apple comparison. The transmission rate is far higher for C19. SARS infected around 8000 people, killed 800 in 8 months, hence the V shape economic recovery. C19 has infected 90,000 and killed 3000 in only 3 months, and no signs of abating. SARS mortality rate is 10%, while C19 is 0.3%. Simple maths presented, but which of the two viruses is more "lethal" to the man in the street? Because the base number of highly infectious C19 is so huge, its low mortality rate doesn't make it less dangerous than SARS. Even at 0.1% mortality rate (100x lesser than SARS), C19 would have killed 900 people in 3 months while SARS killed 800 in 8 months.  

No one on earth in the right frame of mind will plan for an overseas holiday this year until C19 is contained. I have two young kids, age 60+ parents. I know the mortality rate of C19 is low. I am in my mid 30s. I have not wear a single surgical mask since the outbreak. However, I am also mindful if I "sway sway" kena the virus, it means my family members will get it too. For the coming March school holidays, we scrapped our plans for a week long overseas holiday in exchange for a 3D2N staycation. Most holiday makers and responsible parents around the world will have more or less the same mindset as me. Despite the dirt cheap hotel and airline fares, are we making any plans for June and Dec holiday? Well, no prize for guessing it right. Corporate travels have also cut down drastically as mgmt places staff health well-being above profits. 

SATS bought over Singapore Food Industries (SFI) many moons ago. While SFI earnings is more defensive in nature (catering to army camps, schools and production of frozen food items), 85% of SATS earnings is from aviation sector. The overall net profit margin of SATS is 14%, hence any doubt digits drop in topline will have an adverse impact on its bottomline.

From SATS FY18-19 statement (do note that FY1819 figures is actually better than the current 9mFY1920 figures):

Revenue: 1828m
Expenditure: 1580m, of which Cost of Goods is 267m. 
Operating Profit: 247m
Net Profit: 256m

Assuming its aviation revenue takes a 50% hit (not an unreasonable number) and SFI earnings remains contant,
Rev: 1828m x 0.575 = 1051m
Exp: Expenditure down to 1426m as COG decrease to 153m correspondingly. Assume staffs, utilies, premises cost, etc, remain constant.
Operating Loss: -375m

Assuming its aviation revenue takes a 20% hit and SFI earnings remains contant,

Rev: 1828m x 0.83 = 1517m 
Exp: Expenditure 1546m, COG 221m
Operating Loss: -29m

SATS have announced voluntary no-pay leave for staffs. But how many people in this current economy climate will be willingly to take a long no pay-leave. Go on leave, also cannot go overseas holiday right? Double whammy for SATS. No pun intended. 

As I have said, SATS is a wonderful business to own. I was SATS and SFI shareholder, but have sold them a few years back. I am looking to buy SATS and SIAEC again. But at $4, SATS pre C19 PE ratio is at a demanding 20x, not cheap by any standards. I just can't see how SATS can squeeze out an operating profit for the next few quarters if people simply stop flying. Currently, Mr Market is still pricing SATS accordingly to its post C19 earnings in a V shape 3-6 months recovery scenario. Will C19 last more than 8 months like SARS did? No one really knows. But I certainly won't bet against it.

Thank you for the calculations but with all due respect I think the expenses are inflated by approximately 15% hence the inflated operating losses. You have not taken into consideration:
Budget 2020 Wage Support Scheme (~$3m/quarter)
Budget 2020 Wage Ceiling Raised (~$3m/annum)
5-10% in lower wage expenditure due to senior mgmt cuts and min. take-up of no pay leave
Lower ground handlers licensing fees
Lower rental expenses due to rebates

And these are only as of now. Why do I say that? If we assume 50% loss in revenue for SATS, it will be an industry wide impact. Airlines, the whole Changi Airport Group, restaurants, retail and transport should all see similar 50% drop and second-order (maybe 30%?) impact. In your scenario, we should most certainly see a second relief package by the government to support those affected. Restaurants and retail most likely than not have a NPM of less than 14%. Hence, the overall losses should be worse.

Even then, I do agree that sentiments now are very travel adverse. I’m also looking to see if the situation worsens before I make my next flight. However, during SARS the sentiments were also very travel adverse. Why do you think this time is different? Every time in the past we have a virus induced sell-off(not just SARS), the markets always staged a V shaped recovery. 

Also, we are seeing unprecedented global containment actions taken together. Of the 90,000 number of cases you mentioned, 80,000 is within China. Only 11% of all cases are outside of China. Of the 80,000 within China, majority is contained within Wuhan. In this aspect, i feel that the response taken by China has been commendable even if the reported numbers might not be accurate. They have chosen to forsake an entire city for the rest of the global population.Humane or not, another topic.

As Warren Buffet cliche saying goes, be greedy when others are fearful. As you mentioned SATS is a great business but it’s the valuation that is stopping you. I might see further downside from here on, but I know for certain that the travel industry will definitely be back and bigger. I do not forsee a recovery this year, but I do see it in FY2021. Markets are always forward looking. At $3.85-$4 I am ready to be vested with a comfortable margin of safety (personally).

EDIT: $3.85-$4 would be my ideal buying price however it seems that the market is pricing above me as I saw a $3million buy wall at $4.

(03-03-2020, 01:25 AM)jfc18 Wrote: At pre Covid19, SATS PE is 20x at $4. The most optimistic take is its earning will be halved, so PE will be 40x now. However, it can easily bleed money for many quarters before a turnaround of fortune. How can SATS be cashflow positive when global air traffic is not taking off? Forget about the dividends. If there's no earnings, there can be no dividends so as to speak.  

IMHO, it is a tad too simplistic to conclude "it is expensive" just based on "earnings will be halved, so PE will be 40x now".

Well, it does work in theory, especially the maths.


But I observed that it doesn't work in practice. This is because industries are cyclical and markets are forward looking. A company with high P/E ratio could be driven by market's expectations that the upturn is coming (while their earnings are still depressed). On the other side, a company with low P/E ratio could normally be driven by market's expectations that the downturn is coming (while peak earnings are reported). I have seen many examples over the course of my own investment journey - Most low P/E companies turned out to revise their "earnings" lower, while high P/E companies turned out to revise their "earnings" higher. Since "earnings" is the denominator, the P/E ratio changes pretty rapidly and probably not a good gauge after all.

That said, the strength/moat of SATS is probably not the question here. The question that all of us are trying to answer is "Is the current price going to be bottom?" - and this question is probably not the right question to ask as well - Since once we give up timing the market, we actually get better at paying better prices (it's counterintuitive, but somehow i realized that is how it works).

Hi Ivan and weijian,

Thank you for you insightful inputs on the Govt support schemes which I have not given a thought to. To be conservative and not to inflate the Op Expenditure and Op Losses, I have actually painted a more rosy picture and used the numbers from full year FY18-19 statements for the back of envelope calculations. If we were to used the latest 9 months FY19-20 numbers vs 9 months FY18-19, the rise of OPEX this year actually increased by 14.1%, out-pacing the 11.2% growth of Revenue, which resulted the Net Profit to decrease by 12% compared to last year results.

Similarly, the 14% Net Margin I have quoted in my previous post is from FY18-19. For 9 months FY19-20, the Net Margin has since fallen to 11.6%. SATS fundamentals has actually started to deteriorate since last year March. Do note that the 9 months FY19-20 numbers ends at Dec 19, which is pre Covid crisis. SATS financial year ends at March.

I have also kept the revenue from non-aviation segment constant in my calculations, where in reality, SATS derives a portion of its non-aviation revenue from MICE food catering.

Since SATS is in a service industry with little physical assets, we know PTB valuation is not meaningful. So what determines its share price is the future earnings and cashflow. As I have commented, at $4, PE 20x, earning yield of 5%, Mr Market is already pricing SATS accordingly to its post Covid19 earnings in a V shape 3-6 months recovery scenario. If these high expectations aren't met or Covid crisis last longer, Mr Market will have to reprice SATS, no?

We can all agreed SATS is a wonderful piece of business. With a solid balance sheet, negligible debt, it will emerge from this crisis stronger than its competitors. So the real question we should be asking is, when will Covid19 be contained worldwide, so people can start flying again. I hope I am certainly wrong, but my feel is that at the rate Covid19 is spreading, it is reasonable to assume it may last longer than SARS (8 months). Even developed countries with world class healthcare system like Spore, South Korea, France, Germany have difficulties containing it. What chances are left for the undeveloped countries?

(03-03-2020, 11:38 PM)jfc18 Wrote: Hi Ivan and weijian,

Thank you for you insightful inputs on the Govt support schemes which I have not given a thought to. To be conservative and not to inflate the Op Expenditure and Op Losses, I have actually painted a more rosy picture and used the numbers from full year FY18-19 statements for the back of envelope calculations. If we were to used the latest 9 months FY19-20 numbers vs 9 months FY18-19, the rise of OPEX this year actually increased by 14.1%, out-pacing the 11.2% growth of Revenue, which resulted the Net Profit to decrease by 12% compared to last year results.

Similarly, the 14% Net Margin I have quoted in my previous post is from FY18-19. For 9 months FY19-20, the Net Margin has since fallen to 11.6%. SATS fundamentals has actually started to deteriorate since last year March. Do note that the 9 months FY19-20 numbers ends at Dec 19, which is pre Covid crisis. SATS financial year ends at March.

I have also kept the revenue from non-aviation segment constant in my calculations, where in reality, SATS derives a portion of its non-aviation revenue from MICE food catering.

Since SATS is in a service industry with little physical assets, we know PTB valuation is not meaningful. So what determines its share price is the future earnings and cashflow. As I have commented, at $4, PE 20x, earning yield of 5%, Mr Market is already pricing SATS accordingly to its post Covid19 earnings in a V shape 3-6 months recovery scenario. If these high expectations aren't met or Covid crisis last longer, Mr Market will have to reprice SATS, no?

We can all agreed SATS is a wonderful piece of business. With a solid balance sheet, negligible debt, it will emerge from this crisis stronger than its competitors. So the real question we should be asking is, when will Covid19 be contained worldwide, so people can start flying again. I hope I am certainly wrong, but my feel is that at the rate Covid19 is spreading, it is reasonable to assume it may last longer than SARS (8 months). Even developed countries with world class healthcare system like Spore, South Korea, France, Germany have difficulties containing it. What chances are left for the undeveloped countries?

No worries, we are here to learn from each other viewpoints and have constructive discussions. As you mentioned, in FY2020 SATS will definitely see a dip in revenue/profits and might even go into operating losses. This is a certainty. Because of this certainty, the market has priced this fact in at a 22% cut of its share price to a PE of 20. Otherwise, the fair PE that the market has given SATS was 25. Will the market give you a further discount? No one knows. We have to ask ourselves if a lower PE (TTM) of say 15 be appropriate for approximately 1 year of covid19 downtime. If you think so, then you should probably buy in at $3.

For me personally, I can't predict what will happen but for a monopolistic business like SATS, a PE of 20 is fair. We can't use the FY2020 results to calculate anything because this is a black swan event which constitutes as a one-off event, and does not reflect future earning power. Unless you think future earnings will follow the new trend in FY2020, using FY2020 numbers to calculate intrinsic value is moot.

Also, you mentioned that SATS fundamentals have deteriorated as opex have increased 3% more than revenue and net margins decreased by 2% y-o-y. IF we were talking about a business that is not expanding at such a rapid pace, i would agree that "fundamentals are deteriorating". A good example of such a business is Kingsmen Creatives which is another VB favorite. However, for a business that is busy expanding organically and inorganically into so many different countries, as well as new non-aviation sectors, I would say this is hardly an issue as higher gestation costs are common. It is a similar strategy as Amazon, except that SATS has a much better earning power. Once it has successfully cemented its new positions in Japan, China, Middle East, India etc, we will see a reversal in fortunes. Let's not forget that SATS is constantly hitting the headlines for R&D on better processes and putting emphasis on efficiency. 

If the share price does drop further, I will be definitely be buying more. However, I am comfortable initiating a position in tranches as of now. SATS will have no worries seeing out this covid19 crisis. Of course, if there are any fundamental developments regarding SATS itself or macro worries not related to covid19, then I will have to realign my position. This is purely taking into current situation with the covid19 issues. 

Thanks.