July 31 (Bloomberg) -- SATS Ltd., Asia’s largest provider of in-flight meals and ground-handling services, is expanding beyond stocking up Singapore Airlines Ltd.’s food trolleys to feed soldiers and pack vegetables for McDonald’s Corp.
The supply of food to hotels, restaurants and mining companies will increase over the next five years to make up almost a third of its catering sales from 22 percent now, Chief Executive Officer Tan Chuan Lye said. It also provides other food items to Burger King and Pizza Hut, he said.
“There are more opportunities where non-aviation food is concerned, both domestically and overseas,” Tan said in a July 29 interview in his catering kitchen at the company’s Singapore headquarters. “The aviation segment is very cyclical. That’s why we took some effort to grow the non-aviation business.”
Demand is expected to increase as labor-strapped firms farm out catering to companies such as SATS, said Tan, 63, who will retire at the end of the year. The push to diversify the company’s revenue stream will also help it weather turmoil in the airline industry, he said.
SATS’s biggest customers, which include Singapore Airlines and Qantas Airways Ltd., face increased competition from Middle East and low-fare carriers, adding pressure on their yields. While air-passenger traffic recovered from a global slump last year, gaining 5.3 percent, the industry will experience more challenges this year, Tony Tyler, chief executive officer of the International Air Transport Association, said in June.
“SATS has been dependent on airlines, the health of the economy and the competitive landscape,” said K. Ajith, an analyst at UOB Kay Hian Research in Singapore. By developing its institutional catering business, the company “removes that cyclical element, leading to more stable growth,” he said.
SATS was a unit of Singapore Airlines, Asia’s second-biggest carrier by market value. Temasek Holdings Pte, the Singapore state-owned investment company that’s the parent of the airline, is now the largest shareholder in SATS.
The company’s shares climbed 0.9 percent to S$3.32 at the close in Singapore, the biggest gain in three weeks. The stock increased 15 percent this year, compared with a 1.7 percent advance in Singapore’s benchmark Straits Times Index. Singapore Airlines declined 6 percent in 2013.
SATS is trading at 19 times reported earnings, compared with the 33 times average of its peers in the airport services industry globally, according to data compiled by Bloomberg. Singapore’s key stock guage has a multiple of 13.
In March, SATS won a 21-year contract to provide meals at sporting events at Singapore’s new stadium near the city-center, Tan said. It’s expanding overseas and into remote sites including oil rigs and mines, where it provides food for workers.
SATS has set up companies in Australia and India to seek new opportunities, he said, extending a reach that includes 37 airports in 10 countries in Asia and the Middle East.
“The business model of providing a comprehensive handling service -- ground and catering, we’ll roll this overseas,” Tan said. “We want to grow in Asia Pacific and the Middle East.”
In Singapore, SATS also expects to expand at Changi Airport, which plans to complete the construction of its fourth terminal in 2017 and a third runway before the end of the decade. Changi handled a record 51.2 million passengers last year, 10 percent more than in 2012, according to the operator.
Travel demand will grow as the Association of Southeast Asian Nations plan to allow carriers to fly as often as they like among the region’s capitals by the end of this year and to have fully open skies across all routes by 2015.
“We’re planning ahead to take care of the growth,” Tan said. “You have to be prepared. Regional growth is still there.”
To complement the increase in demand, SATS has expanded its food business to hospitals and Singapore’s two casino resorts, which include convention centers and a Universal Studios theme park.
Inflight meals and catering made up 64 percent of the company’s S$1.82 billion ($1.43 billion) of revenue in the year ended March. The rest came mainly from airport ground handling.
“For catering, we have a dedicated food research and center set up,” Tan said. “We are using the knowledge and experience in the aviation sector into the non-aviation sector.”
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