SINGAPORE (July 20): SIA Engineering Company’s (SIA EC) results that came in last Friday (July 17) were “downbeat” as expected, but analysts believe the worst is over for the company as international borders begin to gradually reopen following the Covid-19 outbreak.
However, DBS Group Research analysts Suvro Sarkar and Jason Sum choose to remain “more conservative” about flight traffic assumptions for the rest of FY21 and FY22 due to the lack of the Jobs Support Scheme (JSS) grants from the Singapore government to buffer SIA EC’s balance sheets.
“Note that FY22 does not have the benefit of JSS grants, so the earnings recovery is much steeper than it looks. Cash reserves still look solid and should enable SIA EC to maintain dividends at 8 cents in FY21,” say the analysts in a July 20 report.
Accordingly, Sarkar and Sum have cut SIA EC’s net profit estimates by 30% and 35% for FY21 and FY22 respectively. They have also maintained their “hold” call on SIA EC with a lower target price of $2.10, from $2.30 previously. The revised target price still represents a 7% upside on the stock.
“The TP factors in not just the weak FY21 but SIA EC’s long term prospects and business model, which will remain relevant once the pandemic is history,” they add.
Despite the cut in estimates, Sarkar and Sum remain cautiously positive on the stock, saying that consensus net profit for SIA EC seem “too bearish” given the level of grant income expected.
Sarkar and Sum have estimated SIA EC’s net profit to come in at $89.2 million and earnings per share (EPS) of 7.94 for FY21F.
CGS-CIMB analyst Lim Siew Khee has also maintained her “hold” call with a maintained target price of $1.78, which represents a 9.4% downside to the stock from its last traded price.
Unlike DBS’s Sarkar and Sum, Lim is not so sure about SIA EC.
Despite the grants received for 1Q21, which Lim estimates to come up to some $47 million, SIA EC still incurred an operating loss of $8.6 million.
More cost-cutting is expected, she says.
Lim does not see any “clear signs” of a recovery any time soon either.
While the number of flights picked up in June from Singapore’s Changi Airport, the increase was “not material”.
“With no clear signs of a stronger pick-up in flight frequencies, the outlook for our MRO (maintenance, repair, and operations) business will be challenging,” she says, maintaining her earnings per share (EPS) estimate of 96 cents and net asset value (NAV) of $1.45.
Lim forecasts SIA EC’s to bring in $10.5 million net profit and core EPS of 1 cent for FY21F.
As at 4.04pm, shares in SIA Engineering are changing hands 1 cent higher, or 0.5% up, at $1.97.
