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

Last Friday, SIA Engineering Company Ltd (SGX: S59) reported its third quarter earnings results for its financial year ending 31 March 2017 (FY16/17). The reporting period was for 1 October 2016 to 31 December 2016.

As a quick background, SIA Engineering is a leading player in the aircraft maintenance, repair, and overhaul (MRO) sector. The firm’s 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 SIA Engineering in here or catch up with the results from the company’s fiscal first quarter earnings here.

Financial highlights

The following’s a quick rundown on some of the company’s latest financial figures:

  1. Revenue for the third quarter was $272.3 million, a 1.1% decrease compared to the same quarter in FY15/16.
  2. Share of profits from associated and joint venture companies was down 4.8% year-on-year to $31.6 million.
  3. For the reporting quarter, profit attributable to shareholders was $52.6 million, up 6.5% compared to FY15/16’s third quarter.
  4. Diluted earnings per share (EPS) for the third quarter came in at 4.68 cents per share, a 6.6% increase from the 4.39 cents recorded a year ago.
  5. Cash flow from operations came in at $60 million with capital expenditure coming in at $10.4 million. The lower capex gave the MRO outfit $49.6 million in positive free cash flow, up from the $12 million seen in the third quarter of FY15/16.
  6. As of 31 December 2016, SIA Engineering had $560.2 million in cash and equivalents and borrowings of about $29.7 million. This is up from the $335.7 million in cash and equivalents and total borrowings of $38 million seen at end-2015.

In short, SIA Engineering’s revenue appears to have stalled in the reporting quarter, but profit was up. The company’s bottom-line benefited from a $2.3 million gain on the partial disposal of an associated company. Elsewhere, the MRO firm also registered improvements in free cash flow and maintains a solid balance sheet.

Outlook ahead

On the company’s future, SIA Engineering’s management shared the following commentary in the earnings release:

“The operating environment of the aerospace industry remains challenging in the face of persisting global economic uncertainties.

In line with our commitment to pursue strategic partnerships, during the quarter, we signed an agreement with Moog Inc. to establish a Singapore-based joint venture to overhaul Moog’s products, which include components on flight control systems for new-generation aircraft, such as the Boeing 787 and the Airbus A350. With the incorporation of Heavy Maintenance Singapore Services Pte Ltd in October, the joint venture with Airbus will have access to a larger market.

While these and other recently formed joint ventures position the company well for the future, they are not expected to be accretive in the near term.

As part of ongoing efforts to remain competitive, we will continue to enhance operating efficiencies and manage costs, including investing in new technologies and advancing innovation.”

At its closing share price on Friday of $3.52, SIA Engineering traded at 12.1 times earnings and a trailing dividend yield of 3.4%. Investors should note that the company’s trailing earnings is currently boosted by a one-off divestment gain of $178 million.

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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.