SIA Engineering - OCBC Investment 2021-02-02: A Slow Recovery

SIA ENGINEERING CO LTD (SGX:S59)

SIA Engineering - A Slow Recovery

SIA Engineering (SGX:S59) (SIAEC)’s 3QFY21 revenue fell 58.5% y-o-y to S$104.6m due to depressed travel demand and weak performances across all segments. SIA Engineering recognised an impairment loss of S$11.8m on investment in an engine program.
Share of profits of associated and JVs was similarly impacted by COVID-19 and saw a decline of 68.9% y-o-y to S$12.3m. As such, PATMI was down 85.7% y-o-y to S$7.7m, supported by government support under the Job Support Scheme (JSS).

Visitor arrivals to Singapore fell 85.7% y-o-y to 2.7m while commercial flights handled at Changi fell 67.2% y-o-y in 2020. According to International Air Transport Association (IATA)’s latest estimates, the global airline industry is expected to lose USD118.5b in 2020.
Despite a recovery in 2021, on the back of availability of vaccines, industry losses are expected to continue into 2021 with a net loss of USD38.7b, underscoring a protracted recovery. Moreover, global passenger traffic measured by revenue passenger kilometres is not expected to return to pre-COVID-19 levels until 2024 at the earliest.

We believe the recovery of SIA Engineering’s business will largely depend on the recovery timeline of aviation industry.
In terms of recovery, we believe line maintenance to benefit first with increase in operating flights. Fleet management driven by flying hours, will come next. Base maintenance which requires the aircraft to be taken out of service for longer periods could take a longer time to see demand come back.
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After adjustments, our fair value estimate increases from S$1.75 to S$2.05.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2021-02-02

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