The economic toll arising from the Covid-19 pandemic has been nothing short of staggering.
Even blue-chip companies have not been spared this carnage.
While the local banks have been the more obvious businesses to suffer due to a worsening economic outlook and a depressed interest rate environment, other businesses have also struggled to cope with the coronavirus fallout.
For investors, the most pertinent question to ask is whether these challenges are merely temporary, or if they signal a permanent deterioration in business prospects.
Ascertaining this difference is the key to knowing if an investment thesis remains valid, or may have to be discarded.
These two blue-chip companies have been battered this year.
Will they be able to successfully turn their business around?
1. SATS Ltd
SATS Ltd is a leading provider of food solutions and gateway services for airlines.
The group offers a comprehensive range of services such as baggage handling, aviation security services and airline catering.
SATS is present in 13 countries and over 60 locations around the world.
With borders remaining shut, SATS has seen its revenue plunge sharply as air travel has been curtailed.
For its fiscal 2021’s first quarter, SATS reported a 55 per cent year on year decline in revenue to $209.4 million and an operating loss of $36 million.
Net loss stood at $43.7 million as Covid-19 impacted the group’s associates and joint ventures in both China and India.
The number of passengers handled plunged from 22.5 million a year ago to just 200,000, while flights handled fell from 91,500 to just 6,550.
Despite these challenges, SATS is continuing to transform its business through digitalisation and retraining of its staff.
Although air travel has plunged, the group is still signing up new customers for its food solutions division.
The bright spot here is that revenue from non-aviation customers rose 73.3 per cent year on year even as aviation revenue plunged 73 per cent year on year.
Although the non-aviation segment’s strong performance was not sufficient to cover the gap caused by aviation, it nevertheless helped to mitigate some of the damage.
Singapore Airlines Limited, or SIA, also recently launched its Restaurant A380 @Changi dining experience, which saw 900 tickets sold out within 30 minutes.
The home delivery for SIA’s first and business-class meals also saw a healthy take-up, with 10 orders received within the first half an hour of the service going live.
These initiatives should further boost demand for SATS’ food solutions and help it to mitigate its losses.
The Singapore-Hong Kong travel bubble is set to start in late-November, and this, along with other aviation initiatives, may help SATS to recover its aviation business over time.
SATS will be releasing its earnings for the first half of the fiscal year 2021 on Nov 12 after the market closes.
2. Singapore Post Limited
Singapore Post, or SingPost, has been Singapore’s sole postal service provider for more than 160 years.
The group also runs eCommerce logistics and provides mail and logistics solutions in a total of 19 markets.
In a business update released for the group’s fiscal 2021’s first quarter, the domestic post and parcel business consisting of letters and printed paper continued to witness a decline.
Total items handled fell by a third from 149 million to 100 million.
This was offset by stronger volumes in SingPost’s ecommerce-related volumes, with domestic volumes increasing 52 per cent year on year to 8.7 million items and international volumes increasing 30 per cent year on year to 7.2 million kg.
Group revenue rose 12 per cent year on year due to growth in eCommerce delivery volumes, but expenses increased by a higher 22 per cent year on year, partly due to Covid-19-related supply chain disruptions.
As a result, operating profit plunged by 49 per cent year on year to $22 million.
Investors should note that SingPost has discontinued quarterly reporting for this new fiscal year, and will be paying out half-yearly dividends instead of quarterly dividends hereon.
In mid-September, SingPost announced sweeping changes to its pricing structure for package and parcel deliveries in Singapore and internationally.
These changes took effect from Oct 15, and the idea was to streamline the pricing to make it easier for customers to grasp.
Domestic postage rates now cost a flat fee of $1.50 for basic packages, compared to a complicated tiered structure previously.
For Speedpost deliveries, standard deliveries are now charged a flat rate of $6.00, significantly lower than the range of $10 to $16 previously.
These changes should result in higher demand for SingPost’s services but will come at the expense of margins as the average selling price has fallen.
It remains to be seen if these changes lead to significantly higher volumes that can offset the lower prices charged.
SingPost will be releasing its fiscal 2021’s half-year results on Nov 6 before the market opens.
This article was first published in The Smart Investor. Disclaimer: Royston Yang owns shares in SATS Ltd.