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SIA Engineering - CGS-CIMB Research 2021-10-15: Revving Up The Engines

SIA ENGINEERING CO LTD (SGX:S59) | SGinvestors.io SIA ENGINEERING CO LTD (SGX:S59)

SIA Engineering - Revving Up The Engines

  • Line maintenance services to be driven by higher flight activity from recently opened VTLs in Singapore. Rollout of further VTLs expected in 2HFY22F.
  • Return-to-service of grounded planes and dismantling of Singapore Airlines’ A380 planes should accelerate SIA Engineering’s return to profitability in FY22F.
  • We prefer SIA Engineering to SIA due to its low reliance on passenger load. SIA Engineering's valuations currently look cheap at 1.6x CY21F P/BV (-1.5 standard deviation from mean). Maintain ADD.



Opening of VTLs to drive more line maintenance works

  • As announced on 9 Oct, vaccinated travel lanes (VTLs) will be opened up to 9 countries (US included), with 8 VTLs starting from 19 Oct 2021. We view this as a strong positive for SIA Engineering (SGX:S59), as we expect a steady recovery in flights handled at Changi Airport.
  • Flights handled by SIA Engineering at Changi Airport in 1QFY22 recovered to ~10k flights (+97% y-o-y, +13% q-o-q) even with Singapore maintaining tight borders. With flight activity expected to gain traction in FY22F, spurred by both inbound travellers and locals flying abroad, we see scope for more line maintenance works to be performed.
  • SIA Engineering’s maintenance operations in Singapore and the US stand to benefit the most from current VTL arrangements, with Japan operations next in line as Singapore explores the opening of a SG-JP VTL.

Further boost from grounded planes resuming flight

  • We expect a ramp-up in SIA Engineering’s overhaul and maintenance Max planes by the Singapore Aviation Authority should further support SIA Engineering and its key JV (Boeing Asia Pacific Aviation Services).


Aircraft dismantling should support FY22F/23F revenue

  • As announced in Oct 2021, SIA (SGX:C6L) has commenced the dismantling of two of its Airbus A380 and one Singapore too, we could see an uplift to SIA Engineering’s FY22F/23F revenue.


Line maintenance safer compared to airlines



Prefer SIA Engineering to SIA; reiterate ADD at unchanged target price






LIM Siew Khee CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-15
SGX Stock Analyst Report ADD MAINTAIN ADD 2.850 SAME 2.850



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