MENU

Would Benjamin Graham Buy SIA Engineering Company Limited?

SIA Engineering (SGX: S59), which is part of Singapore Airlines (SGX: C6L), provides airline maintenance, repair and overhaul in the Asia-Pacific to a client base of over 80 international carriers and aerospace equipment manufacturers.

Its other main business provides line maintenance services at Changi Airport as well as 33 other airports across seven countries.

The two segments of SIA Engineering’s business have seen steady profits over the last five years. This in turn has allowed SIA to pay shareholders rising dividends over the same period.

Currently the earning yield and dividend yield stand at 4.9% and 4.4%, respectively. These yields are generous in comparison to the risk-free rate of return of 2.4% that investors can expect to receive from investments in high grade bonds, such as the 10-year US Treasury.

As is often the case with Singapore’s blue chip stocks and components of the Straits Times index, particularly with equity prices pushing close to all-time highs, SIA may seem quite expensive. With a price-to-earnings multiple of over 20 and a stock price standing at over three-and-a-half-times the company’s book value, you might struggle to convince a value investor such as Benjamin Graham that SIA was cheap

However, working in SIA’s favour is the apparently low risk that an investment in the company carries. The company carries negligible debt of only S$25m, which is peanuts for a company with a book value of around S$1.4b. It also pales into insignificance when compared to the net current asset value of the company, which stands at just over S$930m.

The healthy balance sheet leaves SIA with a current ratio of three, which is comfortably above the value of two that Benjamin Graham would hope to see.

Whilst SIA might seem expensive to some, the low risks involved for the generous rewards on offer might still be enough to tempt some value investors, even if it is not an obvious value share.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.