Is SIA Engineering worth buying now?

Analysts envision a slight share price upside in the next 12 months.

  • SIA Engineering Company Ltd (SGX: S59) shares opened slightly higher on Monday (26 July 2021)
  • The group posted a net profit increase for the first quarter of FY2021-2022
  • The performance was largely supported by the Jobs Support Scheme
  • Without the grants, the group would have recorded a S$24.1 million loss
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SIA Engineering’s performance cushioned by government grants

SIA Engineering shares opened higher on Monday, after the group posted a 35.5% year-on-year net profit increase for the quarter ended 30 June 2021 in its latest business update.

The higher profit came on the back of a revenue of S$125.3 million for the first quarter of FY2021-2022, which is S$6.8 million higher year-on-year (+5.7%), largely driven by higher flight activities.

The aviation engineering group said its performance also ‘continued to be supported by grants from government support schemes’, in particular the Jobs Support Scheme (JSS).

Although support from JSS was lower than the same period last year, it ‘substantially cushioned the impact of low flight activities’, it further noted. Without this support, SIA Engineering would have recorded a loss of S$24.1 million.

Consequently, the group incurred a lower operating loss of S$2.9 million compared to the operating loss of S$8.6 million in the same quarter last year.

Pace of recovery slowed due to Delta variant

In terms of operations, SIA Engineering said that the number of flights handled continues to increase, but that the pace of recovery slowed during the quarter as rising cases of the Covid-19 Delta variant resulted in tightening of border restrictions.

The number of flights handled at the group’s Singapore base during the quarter was 97% higher year-on-year.

However, as compared to last quarter, the increase was only 13%, with the increase largely coming from the base carriers at Changi Airport.

Flight activities at SIA Engineering’s overseas line maintenance companies experienced a similarly slow recovery over the last quarter, the company added.

‘At our Base Maintenance facilities, more aircraft maintenance checks were secured from active marketing efforts. However, these checks were of lighter work content as compared to the checks performed in the same period last year,’ the group said.

What is SIA Engineering’s outlook for the rest of FY2021/2022?

Looking ahead, the group said that the trajectory for a sustained recovery ‘remains uncertain’, as it ‘rests on global vaccination and infection rates as well as border restrictions’.

‘The uptick in flight volume from home-based carriers has been encouraging but any meaningful increase in flight frequencies is not expected to materialise in the short term,’ it added.

As such, the company is going ahead with its Transformation programme, in a bid to complement efforts in reshaping its portfolio of subsidiaries and joint ventures.

SIA Engineering shares, which are up 4% year to date, currently have a consensus rating of just below ‘neutral’ and a target price of S$2.22, based on the latest analyst data published by SGX StockFacts.

The target price represents a potential 6.7% upside from the stock’s last traded price of S$2.08 on Monday.

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