SIA Engineering - OCBC Investment 2021-05-07: MRO Environment Remains Challenging

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SIA ENGINEERING CO LTD (SGX:S59)

SIA Engineering - MRO Environment Remains Challenging

• SIA Engineering reported net loss in FY21.
• No dividend was declared.
• Support from JSS extended to Jan 2022.

SIA Engineering's FY21 results below expectations

• SIA Engineering (SGX:S59)’s FY21 results came in below our expectations due to impairment loss and a one-time increase in tax provision which weighed on performance of JVs and associates. FY21 revenue fell 55.4% to S$443.0m on the back of low flight activities and massive grounding of aircraft amid subdued travel demand.
• Share of profits from SIA Engineering's JVs and associates was similarly impacted by COVID-19 and saw a decline of 68.8% to S$39.9m. As such, bottom-line turned from a profit of S$193.8m in FY20 to a loss of S$11.2m in FY21.
• Without the Job Support Scheme (JSS) of S$181.2m, SIA Engineering's PATMI loss would have been S$192.4m for FY21.
• No dividend was declared by SIA Engineering for FY21 as compared to S$0.08 in FY20 for cash conservation.

Weak performances across all segments of SIA Engineering

• Flights handled at Changi by line maintenance was down 81.6% in FY21, but improved slowly on a q-o-q basis. For base maintenance, the number of heavy and light checks performed at Singapore base declined 16.7% and 56.7% respectively due to low flight activities and extension of maintenance intervals with the grounding of aircrafts.
• Heavy checks at Clark base in the Philippines fell 73.7% as these operations were affected by quarantine measures.

MRO environment remains challenging

• Global MRO market and aircraft deliveries was down over 40% in 2020, weighed by low flight activities and muted travel demand. We believe that the MRO environment remains challenging due to deferred checks, extension of maintenance intervals, less MRO spending with early retirement of older aircraft.
• While we could see a recovery in travel demand in 2H21, it could take a few months for the benefits to filter down to SIA Engineering’s airframe maintenance and component overhaul business.
• See
  • SIA Engineering's Share Price,
  • SIA Engineering's Target Price,
  • SIA Engineering's Analyst Reports,
  • SIA Engineering's Dividend History,
  • SIA Engineering's Announcements,
  • SIA Engineering's Latest News.
• After adjustments, our fair value estimate for SIA Engineering increases from S$2.05 to S$2.37.
• HOLD.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2021-05-07

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.37 UP 2.050