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Investor’s Cheat Sheet: All You Need To Know About SIA Engineering Company Ltd In 5 Minutes

SIA Engineering Company Ltd (SGX: S59) provides aircraft maintenance, repair, and overhaul (MRO) services to over 80 international airlines around the world. This article provides a quick and useful summary on the business fundamentals of SIA Engineering for those who are interested in the company.

Key segments

The table shows a detailed breakdown of SIA Engineering’s income statement in segmental terms for its financial year ended 31 March 2018 (FY2017/18):


Source: SIA Engineering annual report

A few quick words about each segment:

1. Airframe and line maintenance: This segment is pretty self-explanatory – it is where SIA Engineering provides airframe maintenance, line maintenance, and fleet management programme services.
2. Engine and component: This is where SIA Engineering provides component overhaul and engine repair and overhaul services.

You may also have noticed that SIA Engineering has significant share of profits from associated companies and joint ventures. The associated companies and joint ventures are also mainly engaged in similar lines of businesses as SIA Engineering.

Historical business performance

You can find SIA Engineering’s business performance over the past five years in the table below:


Source: SIA Engineering annual report

What’s noteworthy is that the company’s revenue, operating profit, and net profit were all down over the last five years, by 7.6%, 34%, and 30.7%, respectively.

Latest earnings update

In its latest earnings update for the quarter ended 30 June 2018, SIA Engineering reported that its revenue fell 5.5% year-on-year to S$257.7 million. Operating profit plunged by 45.5% to S$10.2 million. But, net profit attributable to shareholders was up by 10.4% to S$40.5 million due to a 53.6% jump in share of profits from associated companies and joint ventures to S$32.4 million. The strong showing from the associated companies and joint ventures was due to the engine and component centres businesses.

Dividend track record

One of the key criteria that investors should look at before investing in a company is its track record in paying a dividend. The key here is to look for stable, or even better, rising dividend payments over the years.

In the case of SIA Engineering, its ordinary dividend has unfortunately fallen by 35% from S$0.20 cents per share in FY2013/14 to S$0.13 per share in FY2017/18.

Strength of the balance sheet

The strength of a company’s balance sheet can be seen from its gearing ratio, which is the company’s net-debt (total debt minus cash) expressed as a percentage of its equity. Generally speaking, a company with a gearing ratio of not more than 100% can be seen as having a strong balance sheet, and is better equipped to withstand any tough times in the business environment so that it can grow over a long period of time.

In the case of SIA Engineering, it has S$570.9 million in cash and short-term investments, and total debt of S$22.2 million as of 30 June 2018. This gives it a net-cash position of S$548.7 million and thus a gearing ratio of zero (since debt is lower than cash).

Valuation

SIA Engineering’s share price is at S$2.83 right now. At that share price, the company has a price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield of 2.05, 16.9, and 4.5%, respectively.

Return on equity (ROE)

The ROE gives investors important insight on a company’s ability to generate a profit using the shareholders’ capital it has. In general, the higher the ROE is, the more profitable a company is.

For the year ended 31 March 2018, SIA Engineering produced a decent ROE of 12.4%.

Major shareholders

The table below illustrates who the major shareholders of SIA Engineering are, as of 1 June 2018:
Source: SIA Engineering annual report

It turns out that local airline Singapore Airlines Limited  (SGX: C6L) is a majority shareholder of SIA Engineering. And because Temasek owns over 55% of Singapore Airlines’ shares, Temasek is also deemed to have an interested in SIA Engineering. Temasek is one of the investment arms of the Singapore government, and is one of the largest sovereign wealth funds in the world.

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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.