Better Buy: SATS vs SIA Engineering

Core Viewpoint - The rebound in air travel presents investment opportunities in local stocks, particularly comparing SATS Limited and SIA Engineering as potential beneficiaries of this trend [1]. SATS Limited (SGX: S58) - SATS is one of the largest providers of air cargo and handling services globally and Asia's leading airline caterer [2]. - For the second quarter of FY26, SATS reported an 8.4% year-on-year revenue increase to S$1.57 billion, with profit after tax rising 13.3% to S$78.9 million [3]. - Operating cash flow and free cash flow turned positive at S$77.2 million and S$3.4 million, respectively, indicating a recovery post-pandemic with net earnings of S$244 million for FY2025 [4]. - The company is expanding its global reach through the integration of the WFS acquisition, covering 225 stations in 27 countries, with 50% of global air cargo volume flowing through these routes [4][5]. - Future growth is expected from increased cargo volume handling and cross-selling Food Solutions to the WFS network [5]. SIA Engineering (SGX: S59) - SIAEC operates in the maintenance, repair, and overhaul (MRO) space, with a 26.5% year-on-year turnover increase to S$729 million in the first half of FY26, and profit after tax up over 21% to S$83.3 million [7]. - The operating margin improved to 1.8%, up from 0.6% in the previous year [7]. - SIAEC is pursuing strategic joint ventures with global airlines and OEMs, recently expanding its relationship with Safran Aircraft Engines [8]. - Future growth is contingent on the rebound in air travel, which will drive demand for MRO services [9]. Head-to-Head Comparison - SATS has a global revenue growth potential post-WFS acquisition, while SIAEC's revenue is more reliant on steady MRO demand in the Asian region [10]. - SATS has a debt-to-equity ratio of 1.4 times with total borrowings of S$2.45 billion, whereas SIAEC has a low debt-to-equity ratio of 0.05 times and borrowings of S$4.9 million [11]. - SIAEC has a better dividend history, missing only two annual payments in six years compared to SATS's three missed payments [11]. - Both companies have sustainable dividends, with SIAEC's payout ratio at 69% and SATS at around 32% [12]. - SIAEC's MRO services are expected to be more resilient during downturns compared to SATS [12]. Investment Considerations - For investors seeking higher growth potential, SATS may be more appealing, albeit with higher execution risks related to the WFS integration [13]. - Conversely, for those preferring stability, SIAEC offers a better balance sheet, steadier dividends, and cash flows, albeit with slower growth [13].