SIA Engineering Company Ltd (SGX: S59), or SIAEC, provides aircraft engineering services such as airframe maintenance and overhaul, line maintenance, technical ground handling, and fleet management. The engineering company also has a portfolio of 24 joint ventures and subsidiaries in seven countries.
On Friday, SIA Engineering announced its financial results for the full year ended 31 March 2019. Let’s look more closely at three main aspects of the announcement.
Show me the money
Revenue for the year tumbled 6.8% year on year to S$1.02 billion, largely on the back of a decline in airframe and fleet management revenue. Due to a reduction in material and subcontract costs in line with the lower workload, operating expenses fell 5.1%. As a result, operating profit declined by 27.9% to S$56.8 million.
SIA Engineering’s joint ventures and associates did well for the year, though. The share of profits from its joint ventures and associates rose by S$4.1 million, or 3.7%, to S$113.9 million.
Consequently, profit attributable to shareholders decreased by 13.9% to S$160.9 million, and basic earnings per share fell by the same amount to 14.38 Singapore cents. Investors should note that a year ago, the bottom line included a S$15.0 million gain from the sale of SIA Engineering’s shares in an associated company, Asian Compressor Technology Services Company Limited.
SIA Engineering’s balance sheet strengthened for the year. As of 31 March 2019, the engineering outfit had S$521.6 million in short-term deposits and cash balances, with total borrowings of S$19.3 million. This translates to a net cash position of S$502.3 million. At the end of March 2018, it had S$477.8 million in net cash.
Cash flow from operations for the year swelled 38.9% to S$75.4 million. With a capital expenditure of S$25 million in the latest fiscal period, free cash flow came in at S$50.4 million. This is an improvement from the previous fiscal year’s free cash flow of S$22.7 million.
The board proposed a final dividend of 8.0 Singapore cents per share. Together with the interim dividend of 3.0 Singapore cents already paid out, the total dividend for the latest fiscal year would be 11.0 Singapore cents per share. This represents a payout ratio of 76%.
In comparison, in the previous fiscal year, the total dividend was 13.0 Singapore cents per share (an interim dividend of 4.0 Singapore cents and a final dividend of 9.0 Singapore cents).
What the future holds?
Looking ahead, SIA Engineering faces a harsh operating environment. It said:
“The MRO operating environment remains challenging. Added to that, revenue will be impacted by the unforeseen grounding of customers’ aircraft.”
It made the following comment regarding its partnerships:
“During the year, we had strengthened and expanded our network of strategic partnerships. Our associated company, Eagle Services Asia Pte Ltd, commenced maintenance for the PW1100G engines, which is one of the engines that power the new-generation A320neo aircraft. Joint venture companies (“JVs”) formed previously, namely Heavy Maintenance Singapore Services Pte Ltd, Moog Aircraft Services Asia Pte Ltd and Additive Flight Solutions Pte Ltd, have commenced operations during the year. These JVs are in their gestation period and are not expected to be accretive in the near term. We also recently announced the plan to extend our line maintenance network to Thailand, in partnership with NokScoot Airlines Co., Ltd.”
In all, SIA Engineering did not perform well for its latest fiscal year, and it looks like it would take some time for a turnaround to get underway. At SIA Engineering’s current share price of S$2.43, it has a price-to-earnings ratio of 16.9 and a dividend yield of 4.5%.
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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.