Wednesday, February 6, 2013

Review of SIA Engineering Q3 Results

SIA Engineering reported Q3 results PATMI of SGD 204.2m, with revenues 8% weaker YoY on lower fleet managemen and project revenue. Nevertheless, the company has managed to save on cost control, contributing to an overall operating margin of 10% YoY.

At current price, the stock is trading at a high PE ratios of 20.5, which is about +1.5 SD above the mean. This means that if you are thinking of entering SIA Eng at this point, bear in mind that you are paying a premium valuation. The RSI also indicates an overbought situation, given its recent surge in the price in the past week. The stock is yielding about 4.5% at current price.

PhilipsCapital cites the below reasons as catalyst to its TP of S$6.10, which is based on a multiple of 23X FY14. To me, it is rather ambitious in stating its target price, given the way above premium multiple it is citing.

1.) Exposure to aviation and global air traffic - expected to grow at 5% per annum in the next 20 years. SIA Eng is one of the largest MRO service providers in the world and would benefit from the trend.

2.) Dominant player for tourist arrival - expected to benefit from the growing tourism industry as STB (Singapore tourism board) continues to increase tourist arrivals.

3.) Parent Group SIA backings - Robust demand order book and larget fleet from the SIA group would benefit SIA Eng to increase its workload.

4.) Cash cow machine - the company has no debt/borrowings and it generates a Free Cash Flow of S$250m per annum, which allows the company to pay out increasing dividend to shareholders.


  1. I'd agree Phillips is always over-bullish. 23x PER is a little insane and they use HAECO to justify their PER. CIMB's report is more balanced and OCBC's is not bad either - at least they talk about valuations being too steep and that a more reasonable price to pay would be something lower than $5.00.

    That said, I am loking forward to a hopefully 15c final dividend come May 2013.


    1. Hi MusicWhiz

      I miss your posting especially on SIA Engineering and Boustead.

      Personally like you, I think PhilipsCapital is overly optimistic and bearing on comparing SIAENG with a HK stocks that is trading way above the PER. The report will mislead investors who will just enter into thinking that $6.10 would be achieved easily. A $6.10 would perhaps be achievable if STI hits above 3800 :)