Maybank KimEng: SIA Engineering earnings not as bad as they look

Singapore Changi Airport Terminal 4 departure boardSingapore Changi Airport Terminal 4 departure board

SIA Engineering had an “ugly” fiscal third quarter, which missed forecasts, but it’s “not as terrible as it looks,” as it was mainly from one-offs at associates, Maybank KimEng said in a note on Monday.

“Underlying operations were still weaker than we expected, but to a much lesser degree than reported numbers suggest,” the brokerage said.

On Friday, SIA Engineering reported its fiscal third quarter net profit dropped 40.1 percent on-year to S$33.1 million, a decline of S$22.2 million, with S$20.9 million of the fall attributed to one-time events at associated and joint-venture companies.

The share of profits of associated and joint venture companies fell 52.9 percent on-year in the quarter to S$19.2 million, mainly on a change in the fee structure of an engine shop in 2018, which evened out revenue over the year instead of a lump-sum adjustment as in the year-ago quarter, SIA Engineering said.

In addition, the one-time events included a foreign-exchange adjustment for the functional currency change at an associated company and a one-time tax charge for certain associates during the quarter, SIA Engineering said.

Excluding the one-offs, Maybank KimEng estimated core profit after tax and minority interests would have only been down around 12 percent on-year for the quarter.

It said repair and overhaul (R&O) and fleet management remained “problem areas,” offsetting growth in the line maintenance segment, which has been tracking Changi Airport aircraft traffic growth of low-to-mid single digit.

Maybank KimEng cut its fiscal 2019-21 profit after tax and minority interests forecats by 6-13 percent and lowered its target price to S$2.85 from S$3.00.

But it kept a Buy call, saying that while growth catalysts may take awhile to emerge, the stock is trading at a 15 percent discounted to its average of forward price-to-earnings ratio for the past 10 years, suggesting its Changi Airport franchise is undervalued.

The stock was down 3.17 percent at S$2.44 at 11:04 A.M. SGT.


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