Singapore Aviation Sector - UOB Kay Hian 2021-02-19: 50% Jobs Support Scheme (JSS) Rebate Will Cushion Earnings & Cash Flow In 2021/2022

Singapore Aviation Sector - UOB Kay Hian | SGinvestors.io SIA ENGINEERING CO LTD (SGX:S59) SATS LTD. (SGX:S58) SINGAPORE AIRLINES LTD (SGX:C6L) SINGAPORE TECH ENGINEERING LTD (SGX:S63)

Singapore Aviation Sector - 50% Jobs Support Scheme (JSS) Rebate Will Cushion Earnings & Cash Flow In 2021/2022

  • We estimate that the latest JSS measures, including the S$330m in Aviation Workforce Retention Grant, would lead to a S$29m-267m increase in JSS for aviation companies, with Singapore Airlines expected to be the primary beneficiary. SATS and SIA Engineering will similarly benefit from renewal of licencing rebates.
  • As for ST Engineering, we hope to ascertain the impact at its analyst briefing. For now, we have raised target prices for all the stocks, except for ST Engineering.
  • Maintain MARKET WEIGHT.



Support package for aviation sector in Budget 2021


S$870m support package for the aviation sector would lead to an effective JSS (Job Support Scheme) rebate of 50% for Tier-1 aviation companies.

  • During Budget 2021, Deputy Prime Minister Heng Swee Keat announced that companies within the the aviation sector will receive a 30% Jobs Support Scheme (JSS) rebate and another 10% JSS rebate for another three months starting from July. However, the S$870m One Aviation support package is an additional support package for companies operating at Changi and consists of S$330m Aviation Workforce Retention Grant (AWRG) and a S$540m cost relief scheme. The former provides additional job support and will lead to a total 50% rebate on wages up to S$4,600 for a period of six months till Sep 20 for
  • ST Engineering (SGX:S63) has a hangar at Changi and could potentially benefit from AWRG as well, but we have yet to factor this in, and will seek guidance at its post-results briefing today.

Cost relief measures are similar to that of Budget 2020.

  • Landing charges however would vary with utilisation and our variable rate assumptions remain the same as FY21 for Singapore Airlines. Meanwhile, ground handlers will continue to benefit from a 50% reduction in licencing fees for FY22 as was the case in FY21. This will benefit SATS and SIA Engineering; however we had already assumed that the licencing fee rebates would continue in FY22.

ACTION


Cost savings greater than initial estimates.

  • We had initially assumed that the JSS would be limited to 30% for three months and another 10% for the subsequent three months. Detailed announcements by the Ministry of Transport post release of Budget 2021 have led us to raise our JSS estimates by almost 100%. Not surprisingly, SIA would register the biggest change given the higher workforce. We now estimate S$267m in JSS payouts in FY22 vs our prior estimate of S$127m.
  • Maintain HOLD on Singapore Airlines (SGX:C6L). Despite the increase in our JSS estimates, we retain our S$4.47 target price for the stock, given likely variations in operating data estimate till the end of March year end. Suggested entry price is at S$4.10.
  • Maintain HOLD on SATS (SGX:S58). We raise our target price for SATS to S$4.07, vs S$4.01 previously, factoring the upward revision in JSS for FY22. Suggested entry level is at S$3.85.
  • Maintain SELL on SIA Engineering (SGX:S59).  We raise our target price to S$1.72, vs S$1.68 previously.
  • Maintain HOLD on ST Engineering (SGX:S63) with an unchanged target price of S$3.65. We have however not revised our 2022 earnings estimate, pending the release of its full-year results.





K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-19
SGX Stock Analyst Report SELL MAINTAIN SELL 1.72 UP 1.680
HOLD MAINTAIN HOLD 4.07 UP 4.010
HOLD MAINTAIN HOLD 4.470 SAME 4.470
HOLD MAINTAIN HOLD 3.650 SAME 3.650



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