SIA Engineering Company Ltd (SGX: S59) provides aircraft engineering services such as airframe maintenance and overhaul, line maintenance, technical ground handling, and fleet management. The engineering firm also has a portfolio of 26 joint ventures and subsidiaries in eight countries.
Last week, SIA Engineering’s share price fell by 8.8% to end Friday (16 November 2018) at S$2.58. In comparison, over the same time frame, the Straits Times Index (SGX: ^STI) climbed 0.2%. What could be the reasons for the fall in SIA Engineering’s share price?
The most probable causes, in my opinion, are the company’s weak fiscal second quarter results and lower dividend payment.
For the second quarter of its fiscal year ending 31 March 2019 (FY2019) — the reporting period is for the three months ended 30 September 2018 — SIA Engineering’s revenue declined by 8.5% year-on-year to S$251.3 million, mainly because of lower airframe and fleet management revenue. Operating profit also fell by 43.8% to S$11.3 million. Even though SIA Engineering’s share of profits from associates and joint ventures climbed 31% to S$30.0 million, its net profit still decreased by 1.6% to S$38.0 million.
The company’s balance sheet has also weakened over the past six months. As of 30 September 2018, SIA Engineering had S$455.0 million in short-term deposits and cash balances, with S$20.9 million in total loans. In comparison, at the end of March 2018, it had short-term deposits and cash balances of S$499.7, and total borrowings of S$21.9 million.
SIA Engineering declared an interim dividend of S$0.03 per share for FY2019’s second quarter, down from S$0.04 per share a year ago.
In its latest earnings update, SIA Engineering said that its operating environment is challenging due to the longer maintenance intervals and lighter work content associated with new-generation aircraft. Keen competition in its industry is also causing trouble for the company.
But, there are still bright spots. SIA Engineering shared:
“The transformation journey we have started has been gaining momentum with the progressive implementation of a wide range of measures including innovation and technology. The full benefits will materialise over time.
Our initiatives to build new capabilities and enter into synergistic partnerships have served us well. The engine and component businesses of some of our major joint ventures and associated companies are expected to continue to contribute positively to our bottom line.”
The Foolish takeaway
SIA Engineering did not perform well in FY2019’s second quarter as new aircraft that require less maintenance seem to be affecting the company’s business heavily. I’ll be keeping a lookout on whether SIA Engineering’s growth initiatives will bear fruits in the coming years.
At the share price of S$2.58, SIA Engineering had a price-to-earnings ratio of 15 and a dividend yield of 4.7%.
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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 Sudhan P doesn’t own shares in any companies mentioned.