SIA Engineering - OCBC Investment 2019-11-05: Strengthening JV Portfolio

SIA ENGINEERING CO LTD (SGX:S59) | SGinvestors.io SIA ENGINEERING CO LTD (SGX:S59)

SIA Engineering - Strengthening JV Portfolio

  • SIA Engineering's 2QFY20 PATMI grew 21.1% y-o-y.
  • MRO environment remains challenging.
  • Higher Fair Value estimate of $2.86.



Accounting change boosts profit

  • SIA ENGINEERING (SGX:S59)’s 2QFY20 revenue grew 1.3% y-o-y to S$254.6m, mainly due to higher contribution from the airframe and line maintenance segment (+S$4.6m), partially offset by lower contribution from the engine and component segment (-S$1.3m). 2QFY20 expenditure fell 2.1% y-o-y, largely attributable to lower subcontract costs (-13% y-o-y). See SIA Engineering Announcements.
  • The substantial reduction in company accommodation (-48% y-o-y) was mainly due to the adoption of new accounting standard of IFRS 16. As such, PATMI increased by 21.1% y-o-y to S$46.0m, driven by an increase in operating profit (+73.5% y-o-y) on the back of lower expenditure, partially offset by a decrease in share of profits of associated and joint venture companies (-8.7% y-o-y).
  • Results were slightly above ours and Bloomberg’s consensus.


Increased market share in Changi Airport

  • SIA Engineering managed to expand market share in Changi Airport by increasing the number of flights handled by 2.7% y-o-y, despite the total number of flights at Changi Airport falling 2.5% y-o-y in 1H20. The growth in number was mainly from securing new contracts with new airline services at Changi Airport such as Vistara, Jeju Air.
  • Management noted that the grounding impact of 737 Max was minimal with the current six aircraft undergoing preservation works while SilkAir managed to operate with replacement aircraft from the exiting aircraft in the group.


Expanding JV portfolio

  • Looking ahead, more transformation initiatives are to be progressively implemented over the next three years. SIA Engineering will continue to strengthen its joint venture (JV) portfolio and invest in new capabilities.
  • Recall that SIA Engineering incorporated a line maintenance JV company in Thailand with NokScoot Airlines Co., Ltd (NokScoot) in Jul 2019. Currently, SIA Engineering has a portfolio of 25 JVs across eight countries and six new JVs in gestation period. Nonetheless, we believe the MRO environment remains challenging.
  • An interim dividend of 3.0 S cents was declared, same as last year. See SIA Engineering Dividend History.
  • After adjustments, our fair value increases from S$2.43 to S$2.86. See SIA Engineering Share Price; SIA Engineering Target Price.





Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-05
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.86 UP 2.430



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