SIA ENGINEERING CO LTD (SGX:S59)
SIA Engineering - Worst Is Behind, Recovery Slow
- Operationally, SIA Engineering could have bottomed out as the number of light and heavy checks improved 13% h-o-h and flights handled rose 46% h-o-h in 2HFY3/21.
- Impairment of assets also narrowed by 68% h-o-h to S$11m. We believe SIA Engineering has taken in ‘as much as it could’ given the challenging environment.
- SIA Engineering's FY21F core profit of S$37m was in line with our forecast (S$36m) but above consensus (S$9.6m). BUY on dips; border reopening is still a catalyst.
Mix of aircraft preservation and return to service checks
- SIA Engineering (SGX:S59) performed a total of 150 checks (+13% h-o-h, -49% y-o-y) in 2HFY21, comprising 114 (+5% h-o-h) light checks at the apron and 36 heavy checks (+50% h-o-h). In line with Changi’s flight movement, SIA Engineering’s flights handled improved 46% h-o-h to 16,455 (-77% y-o-y).
- SIA Engineering is seeing steady but slow pace of recovery. Work demand is mainly from
- aircraft preservation (active and long-term storage),
- return to service (lower than C checks) and
- A/C checks.
- SIA Engineering's 2HFY21 revenue was flat h-o-h at S$220m as a result of more light checks performed.
Core profit in line, reported profit affected by impairment
- 2HFY21 reported profit of S$7.8m was below our forecast due to S$11m impairment of investment in Pratt & Whitney 1200 engine programme that supports the suspended Mitsubishi space jet. Excluding the impairment, SIA Engineering 's core profit would have been higher at S$20.9m, in line with our S$19m estimate.
- FY21 core profit of S$37m was also in line with our expectations (S$36m) but above consensus (S$9.6m). FY21 reported loss of S$11m was also narrower than consensus forecast of -S$19m.
Associates affected by one-off tax charges
- SIA Engineering 's 2HFY21 share of associates and JVs of S$11m was below our expected S$35m due to one-time tax charge for a group of associates. These associates were previously qualified for concessionary tax rates of 8-10% (incentive scheme by the Economic Development Board) but eligibility was affected by staff rationalisation measures and COVID-19.
- Qualification process is currently under appeal. Without these, FY21 contribution from associates/JVs would have been ~S$64m (-50% y-o-y) and in line with our forecasts.
JSS extended to Jan 22
- SIA Engineering received a total of S$182m in FY21 from the Jobs Support Scheme (JSS) and we estimate ~S$86m in 2HFY21 with 50% of the staff costs shared. SIA Engineering will continue to recognise JSS till Jan 22. Staff costs were down ~31% y-o-y, excluding JSS support.
Calculated risk expansion; reiterate ADD and target price of S$2.85
- SIA Engineering 's net cash stood at S$606m although no dividend was declared.
- SIA Engineering hopes to complete the potential acquisition of SR Technics Malaysia in 2021. The dedicated facility to service CFM Leap 1A and 1B engines (quick turn work) will be up by end-21 and should lead to some revenue uplift. This completes SIA Engineering ’s engine service capability for existing Rolls Royce/Pratt & Whitney engines (via JVs).
- Our target price for SIA Engineering is based on 2x P/BV or the average12-month trading band just before COVID-19.
- See
- Risk: spread of another COVID-19 variant.
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-05-05
SGX Stock
Analyst Report
2.850
SAME
2.850
