SIA ENGINEERING CO LTD (SGX:S59)
SINGAPORE TECH ENGINEERING LTD (SGX:S63)
Aerospace MRO Sector - Extended Jobs Support Scheme (JSS) A Shot In The Arm
- Translates to significant additional government support for both SIA Engineering (SGX:S59) and ST Engineering (SGX:S63) in 2020/21.
- SIA Engineering’s earnings are more leveraged to this grant income and hence, steeper upward revision to earnings.
- Upgrade SIA Engineering to BUY with higher Target Price of S$2.40.
- Upgrade ST Engineering to BUY with higher Target Price of S$3.80.
Singapore government extends support for critical sectors.
- The Jobs Support Scheme (JSS), which earlier covered 9 months of wage support for Singaporeans till August 2020, will now be extended for another 7 months from September 2020 till March 2021. Firms in the aerospace, aviation and tourism sectors, the hardest hit by the pandemic, are currently receiving 75% JSS support (includes SIA Engineering and ST Engineering’s Aerospace division). The support has been extended and these firms will receive a lower quantum of 50% in wage support for an additional 7 months.
Support to offset some of the pain for MRO providers.
- The global MRO industry is expected to shrink by almost 50% in 2020 and will probably take till 2022/23 to recover to pre- COVID levels. Singapore’s MRO sector is also expected to feel similar pain in 2020, and without the JSS grants, companies like SIA Engineering would have been in the red in the current financial year. Thus, the extension of JSS comes as a relief for the sector and will benefit overall earnings in 2020 and 2021.
Revising up earnings estimates for SIA Engineering and ST Engineering.
- Factoring in the extended JSS, SIA Engineering should accrue an additional S$60m in grant income in FY21, in addition to our earlier estimate of S$125m. This will help boost FY21F earnings by 61%, though FY22 earnings will not be affected that much.
- For ST Engineering, we estimate c.S$110m of additional JSS related grants will be available in FY20/21 on top of our previous estimate of S$300m – of which around S$60m is likely to be recognised in FY20 and the remaining in FY21. This means we would be raising FY20/21F earnings estimates for ST Engineering by 12% and 9% respectively, not as steep as SIA Engineering.
Upgrade SIA Engineering and ST Engineering to BUY.
- For SIA Engineering, we revise our Target Price to S$2.40 (including 15% privatisation premium) and upgrade the stock to BUY on better near-term earnings potential and more secure dividend prospects.
- For ST Engineering, the more diversified play, we raise Target Price to S$3.80 and upgrade our call to BUY as earnings trajectory in FY20/21 now looks creditably close to flattish despite the pandemic.
Suvro Sarkar
DBS Group Research
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Jason SUM
DBS Research
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https://www.dbsvickers.com/
2020-08-18
SGX Stock
Analyst Report
2.40
UP
2.100
3.80
UP
3.400
