SIA Engineering Company Ltd’s Latest Earnings: What Investors Should Know

SIA Engineering Company Limited (SGX: S59) reported its fiscal fourth-quarter earnings yesterday evening. The reporting period was for 1 January 2015 to 31 March 2015.

SIA Engineering is a leading player in the aircraft maintenance, repair, and overhaul (MRO) sector. Its engineering services can be divided into the line maintenance segment and the repair and overhaul segment. SIA Engineering is also a subsidiary of Singapore Airlines Ltd (SGX: C6L).

You can read more about the company here or catch up with its third-quarter earnings here.

Financial highlights

Here’s a rundown on SIA Engineering’s latest set of financial figures:

  1. Overall revenue for the fourth quarter was $276 million, a good 11.3% lower compared to the same quarter last year. For the full financial year ended 31 March 2015 (FY2014-15), SIA Engineering ended up with revenue of $1.12 billion, about 4.9% below the previous year’s revenue of $1.18 billion.
  2. For the fourth quarter, profit attributable to shareholders was $41.4 million, down a hefty 36.5% compared to last year’s quarter. For the full financial year, profit came in at $183.3 million, down some 31% from the previous financial year.
  3. Consequently, earnings per share (EPS) for the fourth quarter saw a 36.6% year over year drop to 3.68 cents in the reporting quarter. SIA Engineering’s FY2014-15 EPS ended up at 16.28 cents, which was a 31.3% plunge from the preceding financial year’s EPS of 23.69 cents.
  4. For the full year, cash flow from operations came in at $96.1 million with capital expenditures clocking in at $49.5 million. The lower capex gave the MRO outfit $46.6 million in positive free cash flow. For some perspective, SIA Engineering ended FY2013-14 with $113 million in operating cash flow, $67.9 million in capital expenditures, and $45.1 million in free cash flow.
  5. As of 31 March 2015, the company had $463.7 million in cash and equivalents and borrowings of about $33.2 million. SIA Engineering’s balance sheet has weakened compared to a year ago when it had $535.7 million in cash and $21.8 million in debt.

In short, SIA Engineering ended its latest financial year with sizable declines in revenue, profit, and operating cashflow. On the flip side, the firm has still managed to produce positive free cash flow and had ended the year with a solid balance sheet (albeit a slightly weaker one).

A final dividend of 8.5 cents per share was also recommended by the management team. Together with the interim dividend of 6 cents per share, this adds up to an annual dividend payout of 14.5 cents per share for FY2014-15. This is a hefty decline from the 25 cents per share in dividend that was paid out for FY2013-14 (of which 5 cents per share was a special dividend).

Operational highlights

For the full financial year, the repair and overhaul segment saw its revenue slide by close to 9% to $678.4 million. Management at SIA Engineering cited fewer heavy checks as the reason for the decline. On the other hand, annual revenue at the line maintenance segment increased by 1.7% from a year ago to end FY2014-15 at $442.2 million.

Elsewhere, share of profits of associated and joint venture companies fell from $162.6 million in FY2013-14 to $106.3 million in FY2014-15.

Speaking on the firm’s challenges and outlook ahead, management at SIA Engineering added the following commentary in the earnings release:

“The operating environment for the MRO industry remains challenging. Advancements in the newer generation engines have improved their reliability while the older generation engines are being phased out. These developments will continue to result in a reduction in engine shop visits in the next few years.

With the changing landscape in the MRO industry, the Company has been taking initiatives to position itself for the future. One such initiative is the fleet management joint venture with Boeing that will incorporate a part of our fleet management business. This joint venture is on track for commencement of operations in this financial year, although it is not expected to be accretive in the near term.

Given the growth in the operating fleet within the region, the Company remains confident that the demand for engine and aircraft MRO work will pick up in the future. With our strong balance sheet, the Group is well positioned to meet challenges, and we will continue to pursue various opportunities and strategic initiatives.”

Foolish take away

At its closing price yesterday of $4.25, SIA Engineering traded at around 26.1 times its trailing earnings with a trailing dividend yield of 3.4%.

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