SIAEC share price to soar on SIA privatization?

Sign up for only $19.99! What a gut-wrenching ride. SIAEC share price staged an impressive come-back as it surged from a low of $1.50 on 23 March 2020 to the current $2.20. The uptick in SIAEC share price represented a whopping 46% increase. Is it the right time for parent company, Singapore Airlines (SIA), to launch a privatization of SIAEC?

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SIAEC share price

The major catalyst for SIAEC share price is the potential privatization by SIA. Rumour of privatization had been ongoing for several years as SIA CEO Goh Choon Phong aggressively consolidated SIA’s portfolio assets in a bid to rationalize cost and create synergy among the Group entities. The consolidation effort saw SIA Cargo and SilkAir being integrated into SIA while Scoot and Tigerair merged. SIAEC could be the next integration initiative following the massive rights issue of SIA.

SIA currently holds 77.4% of SIAEC shares. When the SIAEC share price plunged to $1.50 on 23 March 2020, the Price/Book Value was at a very attractive level of 1.05. At that point of time, it would make sense for SIA to privatize the MRO company. Now that SIAEC share price has rebounded, SIA may have to cough out about $625 million to buy the remaining unowned SIAEC shares (based on offer price of $2.50). Of course, talks of SIAEC being privatized is just my speculation. But in life, never say never.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in SIAEC before. Whether SIAEC share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

SIAEC share price in false dawn?

The recent revival of SIAEC share price should be attributed to the full-year financial result, which saw net profit surging 20% to reach an impressive $193 million. In fact, SIAEC’s financial performance was the best among SIA, SilkAir and Scoot. Credit to the management, the strong operating profit was the result of the 3-year transformation programme.

Indeed, the unusual SIAEC share price movement had even triggered SGX to query the management. To this, SIAEC responded that the recent improvements in market sentiments could be due to the gradual reopening of borders among various countries. In addition, the government grants from the Budgets had helped to cushion some of the impacts from the devastating COVID-19 pandemic.

While the above factors may have helped to lift SIAEC share price, a big question remains on whether the management has truly turned the company. Make no mistake, no business transformation is built solely on cost cutting. For a business to turn, there must be continuous new products or services to grow top-line. For the records, revenue for FY2019/20 dropped to $994.1 million from $1.02 billion in last year. On this basis alone, investors should be worried because revenue had consistently fell for the past five years. FY2019/20 was the watershed financial year as revenue declined below the $1 billion mark.

The biggest clue on the increased operating profit was actually revealed in [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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