Latest Earnings from SIA Engineering: Big Jump in Profits, But…

Last evening, SIA Engineering Company Ltd (SGX: S59) released its fiscal first-quarter earnings for the three months ended 30 June 2016.

As a brief background, the company  provides MRO (maintenance, repair, and overhaul) services in airframe, component, engine, aircraft conversions, and modifications to major airlines from four continents. SIA Engineering serves over 80 international airlines around the world. It has also established joint ventures with world leading engine and component manufacturers and these help to deepen the company’s MRO service offerings.

With that, let’s dive into the company’s latest earnings to have a closer look.

Financial highlights

The following’s a quick summary of some of the latest financial figures for the reporting quarter:

  1. Gross revenue for the quarter came in at S$271.6 million, down 2.1% from the same quarter a year ago.
  2. Profit attributable to shareholders came in at S$198.4 million, a big jump from the S$41.3 million seen a year ago. But, if we exclude one-off gains of S$178 million that are related to the sale of Hong Kong Aero Engine Services (HAESL), the profit figure would be just S$20.4 million.
  3. Given the big spike in profit, SIA Engineering’s earnings per share (EPS) also benefitted, climbing from 3.68 Singapore cents a year ago to 17.67 Singapore cents
  4. SIA Engineering generated positive free cash flow of S$43.7 million (operating cash flow of S$51.4 million and capital expenditure of S$7.7 million) in the reporting quarter. This is higher than the same quarter in the previous year when FCF stood at S$9.7 million (operating cash flow of S$18.2 million and capex of S$8.5 million).
  5. For the quarter ending 30 June 2016, SIA Engineering had S$650.6 million in cash and cash equivalents and only S$35.1 million in debt. This means that the company is in a comfortable net cash position of $615.5 million. It is also an improvement from a year ago when the net cash position was ‘just’ S$454.4 million.

Operational highlights

The decrease in revenue in the quarter was attributed to a drop in fleet management revenue. This was partly mitigated by higher revenue from the line maintenance and airframe and component overhaul businesses.

The road ahead

SIA Engineering’s management had shared its thoughts on the company’s outlook ahead in the earnings release. The picture, unfortunately, looks bleak. Here’s what it said:

“The challenging operating environment is expected to persist, amidst growing global economic uncertainties.

Aided by a strong balance sheet, the Company will continue to invest in capabilities to handle new generation aircraft, and on innovation initiatives and new technologies to enhance customers’ fleet efficiencies and reliability, while generating higher productivity and process improvements.

With ongoing efforts to pursue strategic partnerships, the Group is well-positioned to seize long-term growth opportunities in the region.“

SIA Engineering’s shares closed at a price of S$3.67 on Tuesday. This gives a trailing price-to-earnings ratio of just 12. But, it’s worth noting that the trailing earnings contain the aforementioned large one-off gain.

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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 Esjay does not own shares in any companies mentioned.