SIA Engineering - UOB Kay Hian 2022-11-03: 2QFY23 Results In Line; Recovery Gaining Traction But Cost Pressure Remains

• SIA Engineering’s core net profit continued to improve, reaching S$17.3m in 2QFY23 (1QFY23: S$4.2m). While the business recovery is taking good shape, cost pressure from workforce ramp-up and material prices was slightly higher than our expectations.
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SIA Engineering (SIAEC)'s 2QFY23 results broadly in line.

• SIA Engineering (SGX:S59)’s 2QFY23 (Jul to Sep 2022) headline net profit rose 53.8% q-o-q (+87.5% y-o-y) to S$19.5m in 2QFY23. 1HFY23 headline net profit of S$32.5m (+29.8% y-o-y) accounted for 35.4% of our full-year forecast. Revenue rose 37.4% y-o-y to S$362.2m, driven by higher line maintenance and base maintenance volume. However, opex rose slightly faster by 38.0% y-o-y, due to:
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  2. reduction in government wage support, and
  3. higher material prices.
• As a result, SIA Engineering ended up with an operating loss of S$10.8m in 1HFY23, though this was more than offset by strong profit contribution from JVs/associates (mainly in the engine and component segment) at S$41.4m (+54.3% y-o-y).
• Core net profit improved for the sixth consecutive quarter. Excluding the government wage support, core net profit has been on a consistent recovery track. After returning into the black in 1QFY23 (at S$4.2m), SIA Engineering’s core net profit continued to widen in 2QFY23, reaching S$17.3m. The recovery trend should continue for the rest of FY23.
• Rock-solid balance sheet. As of end-2QFY23, SIA Engineering had a sizeable net cash balance of S$606m, equivalent to about 24% of its market cap. No dividend was declared for 1HFY23.

Benefitting from the recovery of flight activities at Changi Airport.

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Roy Chen CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-11-03 SGinvestors.io

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