How Profitable Are The Different Businesses Of SIA Engineering Company Ltd?

SIA Engineering Company Ltd (SGX: S59), or SIAEC for short, is a company that provides aircraft maintenance, repair, and overhaul (MRO) services. It counts over 80 international airlines as its customers.

It is also one of the subsidiaries of Singapore Airlines Ltd (SGX: C6L). As of 1 June 2016, SIA Engineering is 77.52% owned by Singapore Airlines.

SIA Engineering has two main business segments, namely, repair and overhaul, and line maintenance. I thought it would be interesting and useful to look at how profitable each business segment within the company is.

More specifically, I want to understand how well each segment is doing when it comes to making a profit on each dollar of SIA Engineering’s assets that they employ. In other words, I want to calculate the return on assets for each segment. (The return on assets is found by dividing each segment’s profit by its net assets, or equity.)

The table below shows the profit, assets, and return on assets for the company’s two segments in its fiscal year ended 31 March 2016 (FY15/16):

Source: SIA Engineering FY15/16annual report

There are a few observations we can draw from the table.

Firstly, the line maintenance segment is significantly more profitable than the repair and overhaul business due to its light use of assets. Secondly, the repair and overhaul segment is driven primarily by SIA Engineering’s investments in its associates and joint ventures, rather than the company’s own business.

In all, there are a number of moving parts to SIA Engineering that investors should consider. Investors who can understand the different business segments can have better insight on SIA Engineering’s future profitability.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.