SIA ENGINEERING CO LTD (SGX:S59)
SIA Engineering - A Long Road To Recovery
- Support Schemes amounting to S$25.6m.
- Line maintenance and fleet management took the first hit.
- Recovery pace of MRO business is likely to be slow.
Results above expectations helped by government support
- SIA Engineering (SGX:S59)’s 4QFY20 results came in above our forecasts. Revenue fell 10.4% y-o-y to S$229.3m due to lower revenue from the airframe and line maintenance segment. PATMI, however, rose 5.9% y-o-y to S$52.2m, thanks to S$25.6m government support under the Job Support Scheme and the Credit Scheme, as well as better than expected performances from its JVs & Associates (+8.0% y-o-y).
- For FY20, SIA Engineering’s revenue fell 2.6% y-o-y to S$994.1m, while PATMI rose 20.4% y-o-y to S$193.8m, mainly attributable to higher operating profit and contribution from share of profits of JVs & Association.
- Together with the interim and final dividends of 3 S cents and 5 S cents, total dividend declared for FY20 was 8 S cents versus 11 S cents in FY19.
Reduction of flights hurt SIAEC’s core business
- SIA Engineering’s airframe and line maintenance segment (88.5% of FY20 revenue) took a direct hit from a reduction in flights caused by COVID-19. Fleet management (8.9% by FY20 revenue) was also significantly impacted as its revenue is largely based on flying hours.
- While management noted that the impact on base maintenance was less significant in the near-term, a prolonged COVID-19 will weigh on MRO (maintenance, repair & overhaul services) given extended maintenance intervals and less heavy maintenance required with the grounding/parking of more old aircrafts (leaving newer aircraft in operations).
Pace of recovery largely depends on rebound in travel demand
- Flights handled at Changi Airport fell ~50% of usual number in March. Changi Airport reported that the number of scheduled flights for Apr is 96% lower than what was initially scheduled. We are likely to see the full impact of COVID-19 on SIA Engineering in 1QFY21 with more country lockdowns and continued travel restrictions.
- We expect the recovery of SIA Engineering to largely depend on the improvement in travel demand. However, with a lack of domestic market demand (which is likely to rebound faster than international travel demand) in Singapore, it could potentially see a slower recovery.
- See SIA Engineering Share Price; SIA Engineering Target Price; SIA Engineering Analyst Reports; SIA Engineering Dividend History; SIA Engineering Announcements; SIA Engineering Latest News.
- We pare our FY21/FY22 PATMI by 67%/40% on lower revenue projections. After adjustments, our fair value estimate decreases from S$2.41 to S$1.41.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2020-05-15
SGX Stock
Analyst Report
1.41
DOWN
2.410
