Sold SATS

The share price of SATS (SGX:S58) has climbed from the lows of $2.50 to above $4.30 today, fueled by recent dramatic news of vaccine, potential increased travels and flights in the short future. 

I own 4,000 shares of SATS in my ultra long-term SRS portfolio at an average cost of $4.30 and $4.22 after lessing off the dividends collected in past 2 years.

I sold them all off at $4.32 today at slightly more than breakeven, avoiding the possible hefty loss of more than $7k if I had cut loss in Mar 2020.

From my SRS account as of 23 Nov 2020, SATS share price was 4.08 before further run ups of SATS share price to above my holding cost on 24 Nov 2020.

Why did I change my mind on a long term investment and decided to sell SATS?

1. No dividends in short term

SATS was a great company with strong balance sheet and consistent income producing power in its pre-Covid days. It duopolizes the gateway services and flight food catering businesses in Changi Airport together with DNATA. However, this Covid health pandemic has given a wake up call to mankind and casted a huge impact to the travel and aviation industry. SATS has lost its earning power and monopoly in several airports in Asia, including the Changi Airport, and will be burning cash to sustain its business operations for at least the next 2 years. Flights will not resume to pre-Covid days anytime soon and SATS has already suspended payment of dividends to shareholders in this FY. I do not foresee SATS being able to pay more than 5 cents of dividends in FY2021 and more than 10 cents of dividends until at least FY2023. My primary objective of investing in SATS is for long-term consistent passive income with expectation of more than 15 cents from SATS annually. As this objective could not be met, SATS no longer fulfill my investment criteria. To make matters worst, equity fund raising is definitely an option for SATS to manage its cashflow well.

2. Loss aversion bias

Due to dollar cost averaging consistently since 2018 using SRS funds to invest in SATS, my holding cost of $4.30 is rather high with low margin of safety. I have been sitting on paper losses since the onset of Covid health pandemic grounding flights and the aviation industry. Sitting on huge paper losses of up to $7k at times in Mar and May 2020, my loss aversion bias generates more satisfaction from avoiding the $7k loss than holding out long term for another $7k potential capital gains. Based on technicals and fundamentals, the probability of SATS' share price running up to above $5 is lower than than it correcting back to below $4. Selling now is an escape chance for me to free up my capital and recycle into other businesses with higher potential returns in the short to long term.

3. Harsh reality

Even though flights will slowly resume, the capacity is much reduced. In Singapore, there is lack of domestic travel and international travel has been crippled severely. Vaccine will take time to be given to most people in the world. Stringent travel restrictions will continue to hamper travel possiblity between countries. Air Travel bubble between Singapore and Hong Kong has hit a major stumbling block due to fourth wave of Covid spread in Hong Kong, and face the disappointing possibility of being abandoned.

Even though SATS has diversified its business away from aviation, such as providing food & beverages catering for events, managing cookhouses in SAF camps, cargo handling etc, more than 80% of its revenue will still be derived from air travel due to its core business in providing gateway services and food catering for flights.

In conclusion, I am out of the waiting game for aviation industry. I am taking my money back to open up my investment options in other resilient industries perhaps technology or healthcare instead of incurring the opportunity costs of waiting for the full recovery of the aviation industry. When the opportunity arise for me to invest in SATS again, I would do so again. However, there are plenty of choices now to grow my wealth at a faster rate. Thanks for reading.

With love & peace,

Qiongster