SIA ENGINEERING CO LTD (SGX:S59)
SIA Engineering - Associates Leading The Recovery
- In its 1QFY3/22 business update, SIA Engineering surprised positively with a S$14.5m net profit (+88% q-o-q, +36% y-o-y), forming 46% of our FY22F forecast.
- We believe this was lifted by stronger profit from associates and JVs (+20% q-o-q, +8% y-o-y) and some tax credit (amount undisclosed). JSS: S$38.6m.
- SIA Engineering trades at -1.5 standard deviation of its historical mean, and we believe this could be time to add for long-term with eventual recovery as catalyst. Maintain ADD, Target price: S$2.85.
Steady revenue, wider operating losses, stronger associates/JVs
- Based on its succinct disclosure, SIA Engineering (SGX:S59)’s 1QFY3/22 revenue of $125.3m (+9% q-o-q, +6% y-o-y) was driven by higher flight activities, with group opex at S$128m (-7% q-o-q, +13% y-o-y) and an operating loss of $2.9m (vs. operating loss of S$1.1m in 4QFY21).
- Share of profits of associates and JVs was $14.8m, forming 39% of our FY22F forecast. Key contribution was from the engine and component segment ($18.3m), while the airframe and line maintenance segment turned in a lower loss of $3.5m.
- Without the Job Support Scheme (JSS), SIA Engineering would have incurred a 1QFY22 net loss of S$24.1m.
- We believe SIA Engineering's 1QFY22 net profit of S$14.5m could have also been lifted by a tax credit of an undisclosed amount.
Strong cash balance, add for eventual recovery
- SIA Engineering ended 1QFY22 with a cash balance of $683.5m (4QFY21: S$616m). Net cash as at 4QFY21 was S$606m.
- At 1.5x FY22F P/BV, SIA Engineering trades close to -1.5 below its historical mean.
- We believe downside risk is limited on the back of global vaccination rollout. We think that by Dec 21/early 2022, quarantine-free visits/vaccination certificates could be rolled out for selected countries that Singapore has established Air Travel Pass (ATP) arrangements with.
- While the passenger load could still be low in the initial stages, we think airlines restarting flights are likely to see their flights handled numbers jump.
- Reiterate ADD on SIA Engineering with target price of S$2.85 (2x P/BV CY21F), the average 12-month trading band just before the COVID-19 pandemic.
- See
- Another uncontrolled pandemic is a downside risk.
- Key catalysts: reopening of borders and shareholder corporate action.
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-07-23
SGX Stock
Analyst Report
2.850
SAME
2.850
