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DBS upgrades SIA Engineering and ST Engineering to ‘buy’ after extended JSS

Lim Hui Jie
Lim Hui Jie • 2 min read
DBS upgrades SIA Engineering and ST Engineering to ‘buy’ after extended JSS
DBS Group Research has upgraded SIA Engineering and ST Engineering to “buy” after Singapore announced additional support measures for companies in the aerospace, aviation, and tourism sectors.
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DBS Group Research analyst Suvro Sarkar has upgraded SIA Engineering Company (SIE) and Singapore Technologies Engineering (ST Engineering) to “buy” after Singapore announced additional support measures for companies in the aerospace, aviation, and tourism sectors to cope with the Covid-19 pandemic.

Sarkar has also increased his target prices for SIE and ST Engineering to $2.40 and $3.80 respectively.

On August 17, Singapore Deputy Prime Minister Heng Swee Keat announced that the Jobs Support Scheme (JSS) will be extended by another seven months to March 2021, with firms in the aerospace sector receiving up to 50% in wage support.


See: Singapore doles out another $8 bil, brings total support in fight against Covid-19 to $100.9 bil: DPM Heng

Sarkar said the support has “offset some of the pain” for maintenance, repair, and overhaul (MRO) providers. He said that the global MRO industry is expected to shrink by almost 50% in 2020 and will probably take till 2022 or 2023 to recover to pre-Covid levels.

Singapore’s MRO sector is also expected to feel similar pain in 2020, and without the JSS grants, companies like SIA Engineering would have been in the red in the current financial year. Thus, the extension of JSS comes as a relief for the sector and will benefit overall earnings in 2020 and 2021.

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Factoring in the extended JSS, SIA Engineering should accrue an additional $60 million in grant income in FY21, in addition to our earlier estimate of $125 million. This will help boost FY21F earnings by 61%, though FY22 earnings will not be affected that much.

For ST Engineering, he estimates about $110 million of additional JSS related grants will be available in FY20/21, on top of the previous estimate of $300 million.

Of this, around $60 million is likely to be recognised in FY20 and the remaining in FY21. This means FY20/21 earnings estimates for STE will be raised by 12% and 9% respectively.

As at 2.19pm, shares of SIE were trading at $1.90, 4 cents above its previous close of $1.86, while STE was trading at $3.46, 7 cents higher than its previous close of $3.39.

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