SATS’ recent acquisition of a majority control of Thai frozen food producer, Food City, is likely a “strategic” investment, according to UOB KayHian.
The brokerage says the company is likely to expand Food City’s product offerings, which have focused on duck meat.
It notes that SATS has guided for Food City to hit a daily production capacity of 90,000 ready-to-eat meals.
The company has indicated that it will benefit from Food City’s scale and location in the Thai food ecosystem.
Food City will enable the company to supply to its growing customer base across the region, from aviation to food service to retail.
On June 8, SATS entered into a conditional sale and purchase agreement to acquire an 85%-stake in Food City for THB484.5 million ($21 million).
The agreement was signed by SATS’ indirect subsidiary SATS (Thailand).
See also: SATS acquires majority control of Thai frozen food producer for $21 mil
Food City’s current owner, Thai-listed Bangkok Ranch, will retain the remaining 15% stake.
For now, UOB KH has made no change to its earnings forecast for SATS as it has not incorporated Food City’s financial.
Food City has been in the red for the past three years.
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“We believe that SATS, with its business links to AirAsia, could garner a share of the airline catering market which is presently dominated by Thai Airways and Bangkok Air Catering, and also expand its product offering in the Thai retail scene,” UOB KH analyst K Ajith writes in a note dated June 10.
UOB KH has maintained its “hold” rating for the stock with an unchanged target price of $4.09.
As at 1.49 pm, SATS was up 6 cents or 1.5% at $4.14 with 1.6 million shares changed hands.
Photo: Samuel Isaac Chua/The Edge Singapore
