SIA Engineering - OCBC Investment 2022-11-02: Performance Improved As Flight Activities Picked Up

• SIA Engineering's net profit increased 30.0% y-o-y in 1HFY23.
• No dividend was declared.
• Flights handled recovered to 55% of pre-COVID levels in 1H22.

Performance improved but cost pressure is likely to remain in the near-term

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• Meanwhile, group expenditure grew 38.0% y-o-y to S$373.0m, in tandem of increased flight activities and the stepping down of government wage support. The growth in expenditure outpaced the improvement in revenue, leading to an operating loss of S$10.8m (vs. loss of S$6.7m a year ago) for SIA Engineering in 1HFY23.
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• No dividend was declared by SIA Engineering, similar to the same period last year.

Benefiting from a recovery in flight activities

• Flights handled at Changi by line maintenance doubled y-o-y in 1HFY23, representing ~55% of pre-COVID workload. The number improved to 63% of pre-COVID volume as at the end of Sep 2022.
• For base maintenance, the number of heavy checks performed at Singapore base fell 9% y-o-y while light checks increased 59%. Heavy checks at Clark base in the Philippines improved by more than 2.6x as travel restrictions were lifted.
• As airlines increase capacity and look to return grounded aircraft back to service, we believe the demand for maintenance, repair and overhaul (MRO) business will continue to improve. Meanwhile, SIA Engineering will continue to seek new opportunities by working to secure new customers and contracts.

Fair value estimate of S$2.60 for SIAEC

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Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2022-11-02 SGinvestors.io

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