SIA Engineering

Price target:

UOB Kay Hian “buy” $2.80

Preferred proxy to ride Singapore’s aviation recovery

UOB Kay Hian analyst Roy Chen has re-initiated a “buy” recommendation on SIA Engineering with a target price of $2.80 as the industry’s recovery is “well on track” and SIA Engineering is positioned in a faster lane of recovery compared to peers whose financial performances are more geared to the relatively laggard passenger volume growth.

Chen adds that SIA Engineering is set to be first among the local aviation-related companies to report positive core earnings, with an earnings estimate of $92 million for the FY2023 ending March 2023, which will be equivalent to 57% of FY2019, the full year before the pandemic hit.

The company is also well positioned to resume dividend payment in as early as FY2023. This is considering its earnings recovery and strong balance sheet carrying some $679 million in net cash. “We do not rule out the possibility of a special payout by FY2024, given its major shareholder Singapore Airlines’ (SIA) cash needs for mandatory convertible bond (MCB) redemption,” Chen adds.

Moreover, SIA Engineering’s various joint ventures across the region are set for recovery too, as airlines contract out more work before the impending pick up heightened demand with full recovery of the aviation industry. This has been made possible with SIA Engineering’s strong business development foundation and ties with the major engine makers, says Chen. Some risks the analyst notes include events that disrupt the sector’s recovery and increase competition for SIA Engineering’s maintenance, repair and overhaul (MRO) business. —