Currently trading at $3.73, SIA Engineering Company (SIAEC) shares have not reached the 5-year low of $3.35. But it does not mean that the company is doing fantastic either. SIAEC shares had been sliding from a record level of $5.29 since 2013 and many investors wonder whether it would be worth investing in SIAEC shares now.
For 1Q16, SIAEC announced profits amounting to $199.8 million as compared to $41.7 million in 2015. The explosive increase was due to $141.6 million gain from the divestment of its 10% stake in Hong Kong Aero Engine Services Ltd (“HAESL”) to Rolls-Royce Overseas Holdings Limited (“RROH”) and Hong Kong Aircraft Engineering Company Limited (“HAECO”).
In addition, the Group received a special dividend of $36.4 million from HAESL following the divestment of HAESL’s 20% stake in Singapore Aero Engine Services Limited (“SAESL”) to Rolls-Royce Singapore Pte Ltd (“RRS”), bringing the overall gain from the divestment to $178.0 million.
SIAEC financial performance
Apart from the one-off divestment, there are few bright spots for SIAEC. Revenue has declined for the past two years and for 1Q16, SIAEC registered a decline of revenue to $271.6 million from $277.3 million in 2015. Some analysts predicted in the news lately that lower passenger traffic for SIA would have serious impact on SIAEC’s business. But I beg to differ.
To put things into perspective, the aviation sector is very heavily regulated and this is even more so for aircraft maintenance tasks. So regardless of market conditions, operators like SIA are required to send their aircraft for maintenance checks. Thus, to attribute SIAEC’s decline in business to SIA’s decreasing passenger traffic does not make sense to me.
In fact, if investors bother to analyze the FY15 financial results, actually SIAEC derived only 34% of its revenue from SIA. The bulk of its …Read more