SIA Engineering - DBS Research 2023-05-11: Ever Closer To Operating Turnaround

• SIA Engineering (SGX:S59)’s 2HFY23 and FY23 performances largely met our expectations, with the group almost returning into the black at the operating level, with overall activity levels at 75-80% of pre-pandemic levels in the final quarter.
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• Excluding the effect of wage supports and some one-off tax writebacks in FY22, SIA Engineering's net profit improved by S$102.6m y-o-y in FY23, according to management estimates. This represents a significant turnaround in profitability.

Line maintenance volumes continue to pick up as economies open, including China.

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• We expect further normalisation of flight activity levels over 2023 and 2024 and for numbers to reach pre-pandemic levels over the next 6-12 months.
• Meanwhile, supply chain disruptions impact engine and component shops. Shares of JV/associate profits came in at S$77.8m for FY23, down 2% y-o-y. However, excluding one-off items last year, this was a S$42.7m improvement (more than double y-o-y). Contribution from associates and JVs, however, saw a decline in 4QFY23 owing to supply chain disruptions, which have led to component and part shortages and consequently, longer repair cycles.

Cost pressures remain amid persistent inflation

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Suvro SARKAR DBS Group Research | Jason SUM CFA DBS Research | https://www.dbs.com/insightsdirect/ 2023-05-11 SGinvestors.io

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