The Good And The Bad: Important Investing Takeaways From SIA Engineering Company Ltd’s Latest Earnings

SIA Engineering Company Ltd (SGX: S59) specializes in providing aircraft maintenance, repair, and overhaul (MRO) services. The company, which is a subsidiary of Singapore Airlines Ltd (SGX: C6L), counts over 80 international airlines as its customers.

Three weeks ago, the company reported its full-year results for its fiscal year ended 31 March 2017 (FY16/17). There are both positive and negative takeaways from the announcement that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overall result

Here’s a table showing some of the important items from SIA Engineering’s income statement for FY16/17 and FY15/16:

Source: SIA Engineering FY16/17 full year earnings

At first glance, SIA Engineering appeared to have done a great job growing its bottom-line despite a lack of revenue growth. But, it’s worth noting that the higher profit came mainly on the back of (1) a S$141.6 million gain from the sale of the company’s 10% stake in Hong Kong Aero Engine Services Ltd, and (2) a $36.4 million special dividend that’s related to the aforementioned sale.

2. The positives

Firstly, SIA Engineering’s share of profits from associates and joint ventures increased by $2.3 million to S$95.6 million, mainly due to contributions from the engine repair and overhaul centres.

Secondly, the company’s balance sheet remains strong, a result of the company generating positive free cash flow during the year and the sale of certain investments. As of 31 March 2017, SIA Engineering has S$601.7 million in cash and equivalents and borrowings of S$25.9 million.

Thirdly, SIA Engineering increased its total dividend for FY16/17 to 18 cents per share, up from 14 cents in FY15/16.

3. The negatives

Firstly, despite the company’s revenue falling by 0.8% in FY16/17, its operating expenses increased by 2.4%. This was mainly driven by a 10.7% jump in staff costs. This resulted in a 31.0% decline in operating profit to S$72.0 million for the year. The increase in staff costs was due to the sale of the Hong Kong Aero Engine Services stake; but even after adjusting for the one-off expense, SIA Engineering’s operating profit in FY16/17 would still have been 10.6% lower compared to FY15/16.

Secondly, without the positive contribution from SIA Engineering’s divestment gains, the company’s profit attributable to shareholders would also have been lower than in FY15/16 (a 2.6% decline).

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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.