SIA Engineering Company Ltd (SGX:S59) Group provides extensive maintenance, repair and overhaul (MRO) of aircraft to more than 80 international airlines worldwide. With a market capitalization of S$4.6 billion, the Group has 6 hangars and 22 in-house workshops in Singapore which provides complete MRO services in airframe, component, engine, aircraft conversions and modifications to major airlines from four continents.
SIAEC Group main revenue source is derived from both repair & overhaul and line maintenance business as shown in the table below:
|Total Revenue (SGD millions)||2012||2013|
|Repair and Overhaul||725.3||743.6|
Including its associated companies and joint-ventures, the Group generates an operating cash flow + cash dividends received of approximately S$250 million per year between FY2006 and FY2014. With its relatively low capital spending requirements, SIAEC generates a free cash flow of S$196 million per year over the same period.
SIAEC last paid out S$0.25/share in dividends in FY2014 which implies a dividend pay-out ratio of 106% when it earned a dilutive-EPS of S$0.24/share. Historically, its dividend pay-out ratio has averaged around 75%.
Fiscal Year End-Mar
Dividends per share (SGD)
Earnings per share (SGD)
Dividend payout ratio
Currently, the Group’s shares has a dividend yield of around 4.6%.
MRO Service Industry Outlook
There is a huge opportunity in the MRO services industry given the potential growth in air travel within Asia Pacific, driven by stronger domestic consumption. Moreover, the MRO services industry in Singapore is largely dominated by SIAEC and ST Aerospace, a subsidiary of ST Engineering (SGX:S63). Within the region, Sepang Aircraft Engineering (SAE) and Hong Kong Aircraft Engineering (HKSE:0044) are direct competitors. The high capital requirements of entering the industry, niche technological know-how of engines and a need to employ qualified talents raised the barrier to entry. However, with the airlines industry facing higher operating costs, airline companies might eventually opt for lower-cost MRO service providers, potentially intensifying competition.
Value in Action
SIAEC is directly owned by SIA and is highly dependent onthe airlines industry. The Group has not missed dividend payments since FY2006 and has paid an average 75% of its diluted earnings.
Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies!
We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded.The information provided is for general information purposes only and is not intended to be any investment or financial advice.
All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above.