SIA Engineering Company

[CityFarmer]

The analyst view on SIA Engineering...

SIA Engineering kept at ‘fully valued’ by DBS with $3.70 price target

SINGAPORE (July 28): DBS ( Financial Dashboard) is maintaining its “fully valued” rating on SIA Engineering (Financial Dashboard) with a $3.70 price target on weak 1Q16 earnings and lingering weakness at engine MRO centres.

In a July 28 report, analyst Suvro Sarkar is trimming its FY16/17 earnings estimates by about 5% each, given the lack of any recovery signals in both the heavy maintenance business and engine shops.

In FY15, SIA Engineering’s heavy maintenance segment reported a 15% decline in sales.

Newer aircraft are seeing their maintenance cycles being lengthened, on top of needing less maintenance, which does not bode well for the group in the near term.

The phasing out of older generation engine models continues to be a dampener on contributions from the company’s engine MRO centres Eagle Services Asia and SAESL.
...
http://www.theedgemarkets.com/sg/article...ice-target

[csl123]

MRO sector remains challenging. Are other MRO operators facing similar situation?

(not vested)

SIA Engineering posts 23% fall in 1Q earnings to $41.3 mil

SINGAPORE (July 27): SIA Engineering Group ( Financial Dashboard) posted 1Q15 earnings of $41.3 million, a decrease of 22.8% compared to the corresponding quarter last year.

Basic earnings per share was 3.68 cents, down 23.2% from 4.79 cents a year ago.

Profit in the same quarter last year included a $5.8 million gain from the restructuring of one of its subsidiaries. Excluding this gain, earnings to owners of the parent in this quarter would have decreased $6.4 million or 13.4%.
...
http://www.theedgemarkets.com/sg/article...gs-413-mil

ST Aerospace is facing similar issues in their aircraft maintenance and modification unit with declining revenue. ST Aero's revenue decline is 2.4% in Q1 2015 (S$490.8M) compared to Q1 2014(S$502.8M). EBIT margin is stable at Q1 2015 - 14.5% and Q1 2014 - 14.8%. The revenue decline is lower than SIAEC of 5.7% for Q1 2015 vs Q1 2014.

[csl123]

Thanks for the input. You means OEMs, e.g. Rolls-Royce, are taking over the MRO business?

From what I understand rudimentarily:

Contract terms with airlines have changed with the OEMs. In the future, OEM's sale prices will be a function of time-in-air and in return, airlines give the MRO contract back to OEM. This aligns both parties' interests - the airline gets lower turnaround time and more flights (hopefully) and the OEM gets the MRO income (at the expense of needing to ensure reliability).

The rest of it is pretty hazy. Will the OEMs prefer to work with a regional partner or go alone (seems to me the former might be better capital-wise)? If they choose a partner will they choose SIAEC(esp given the current partnerships and SIA parentage links)? What kind of margins compared to that currently?

Structurally things have changed and it's not business as usual.

I did not go to the AGM, but some of what you wrote puzzles me.

SIAEC has been working with OEMs for a long time. The way you put it, sounds like this working model is revolutionary. Its repair/overhaul JVs - Eagle Services (with Pratt and Whitney) and SAES (with Rolls Royce) are the main money spinners of its 'don't-know-how many-but-it-doesnt-matter JV/associates. OEMs will refer to work with Airlines rather than going on their own, because the relationship is symbiotic in nature - I am SIA and i am going to order XXX planes fitted with ABC engine as long as you start a JV with me and share your R&D...It is not about capital because it doesnt take much capital to setup a repair shop (you just need to rent the space and spend more on operating costs to employ the right expertise)

The main decline in SIAEC's revenues/bottomline is NOT because of how the contract nature with OEM have changed. Read back the last 9months worth of discussion in this thread (hint: read csl123's posts) Rather, the current fleet of planes that SIAEC used to service, are going out of commission soon. The new generation of planes require less maintanence (damn! how can the FAA agree to this!) and more importantly, Eagles/SAES does not have the expertise (yet) to repair/overhaul the new engines that these new planes are on, hence losing their competitive advantage.

There are some points which I want to comment on :
"It is not about capital because it doesnt take much capital to setup a repair shop (you just need to rent the space and spend more on operating costs to employ the right expertise)"
- I dont quite agree to this point, depending on the type of overhaul shop (i.e engines or minor components) the setup/licensing cost can be large (>$100M)



The main decline in SIAEC's revenues/bottomline is NOT because of how the contract nature with OEM have changed.
- Not entirely true. The business models and commercial terms for aircraft maintenance have changed. The MROs part traditionally is managed by airlines or MRO providers (Fleet Management of SIAEC, ring a bell?). These days, both aircraft OEMs and engine OEMs have built in maintenance contract (Power by the Hour) into aircraft sales. Upfront cost of buying an aircraft is reduced, by trading off higher maintenance cost in the future. (Not my problem, right? Its my successors problem)


Eagles/SAES does not have the expertise (yet) to repair/overhaul the new engines that these new planes are on, hence losing their competitive advantage.

-ESA is overhauling PW4000 on B747 and hopely the GTF on the A320 Neo. Seems like most players are parting out B747 and swapping engines. A320Neo is not even in operation. There wont be any engines coming in for the next 7 years. So what's next for ESA ?

-SAESL overhauls the RR trent engines. Trent engines coming into the shop is from A380 Trent 900, B777 Trent 800 and A330 Trent 700. The aircraft and hence engines in SIA's fleet is still young, except for B777. Not much overhaul work. Not to mention that SAESL also face competition from regional overhaul shop like HAESL

Note : OEM can be used too loosely. There are Airframe Integrators or OEMs (Airbus, Boeing), Engine OEMs (GE, CFM, Rolls Royce, Pratt) and Component OEMs (i.e UTAS, MBD, Parker, BE Aerospace, Zodiac etc). Some are SIAEC's partners, while others are out to compete.

[AQ.]

decent point from CIMB report:

Pratt & Whitney fading

Associates contribution slumped 53% qoq in 2Q16 to S$6.8m due to provision for pension top-up and provision for doubtful debts. We expect Eagles Services, servicing Pratt & Whitney engines to remain weak as P4000 that power B747s are replaced by B777-300ERs (GE90) and B787 Dreamliner (Rolls Royce’s Trent 1000 and GEnX).

Rolls Royce is still relevant

JV contribution was up 25% qoq to S$11.9m in 2Q16 due to timing of engine shop visits. SAESL, which services Rolls Royce engines will continue to be relevant especially the Trent 1000 and Trent XWB (A350) engines. Trent 1000 entered the market in 2011 and Trent XWB in 2013. With the engine cycle lasting up to six years (vs. four to five years previously), management expects the next engine cycle to return in 2018/19.

[jalanjalan]

http://infopub.sgx.com/Apps?A=COW_CorpAn...7b84741718

based on this announcement, SIAEC's EPS will be 32.3 cents which translates to a PE ratio of 11.2. It would be cheap if we take it's historical PE into consideration.

i have also noticed that the company has been actively buying back its shares since this announcement.

is this a good move by the company?

[d.o.g.]

http://infopub.sgx.com/Apps?A=COW_CorpAn...7b84741718

based on this announcement, SIAEC's EPS will be 32.3 cents which translates to a PE ratio of 11.2. It would be cheap if we take it's historical PE into consideration.

i have also noticed that the company has been actively buying back its shares since this announcement.

is this a good move by the company?

As the company itself has announced, this is merely a restructuring exercise to simplify the shareholding structure of the entities involved. It will also free the HAECO and SIAEC entities to compete freely without conflicts of interest. Any gains are one-off in nature.

[csl123]

decent point from CIMB report:

Pratt & Whitney fading

Associates contribution slumped 53% qoq in 2Q16 to S$6.8m due to provision for pension top-up and provision for doubtful debts. We expect Eagles Services, servicing Pratt & Whitney engines to remain weak as P4000 that power B747s are replaced by B777-300ERs (GE90) and B787 Dreamliner (Rolls Royce’s Trent 1000 and GEnX).

Rolls Royce is still relevant

JV contribution was up 25% qoq to S$11.9m in 2Q16 due to timing of engine shop visits. SAESL, which services Rolls Royce engines will continue to be relevant especially the Trent 1000 and Trent XWB (A350) engines. Trent 1000 entered the market in 2011 and Trent XWB in 2013. With the engine cycle lasting up to six years (vs. four to five years previously), management expects the next engine cycle to return in 2018/19.

CIMB overly simplify issues and merely listens to what the management tells them.

1) Quite a number of RR trent 1000 engines are managed under Totalcare. This means that RR has the right to send the engines to any shop that provides trent 1000 engine overhaul services (HAESL, SAESL etc) as long as the shop is competitive. The key question to ask is - how does SAESL remain competitive to ensure that business will continue to flow to SAESL?

2) Trent XWB enters into service in 2015 with Qatar. Dont forget, the absolute quantity of XWB engines in service is not going to be significant say until 2018. (max production is about 240 per year) Not many airlines are taking up A380 (Trent 900), so it is likely that business will continue to decline until 2018.

[csl123]

http://infopub.sgx.com/Apps?A=COW_CorpAn...7b84741718

based on this announcement, SIAEC's EPS will be 32.3 cents which translates to a PE ratio of 11.2. It would be cheap if we take it's historical PE into consideration.

i have also noticed that the company has been actively buying back its shares since this announcement.

is this a good move by the company?

As the company itself has announced, this is merely a restructuring exercise to simplify the shareholding structure of the entities involved. It will also free the HAECO and SIAEC entities to compete freely without conflicts of interest. Any gains are one-off in nature.

Previously, the cross holding structure foster a certain degree of collaboration between SAESL and HAESL. RR managing the totalcare programs for the airline, will stand to benefit from breaking up this collaboration. RR as the main contractor will want to foster competition amongst their contractors to drive cost down. I think SAESL margins will be further squeeze. The winners here are RR and the airline customer of RR.

[LionFlyer]

http://infopub.sgx.com/FileOpen/SIAENGCO...eID=437913
http://infopub.sgx.com/FileOpen/SIAENGCO...eID=437914

The Group posted a profit attributable to owners of the parent of $52.6 million for the third quarter of FY2016-17, an increase of $3.2 million or 6.5%. Profit this quarter included a $2.3 million gain on the partial disposal of an associated company, while the same quarter last year was impacted by provisions for closure costs and impairment of two associated companies. Operating profit of $25.2 million was $3.8 million or 13.1% lower than the same quarter last year. Revenue of $272.3 million saw a decrease of $2.9 million or 1.1%, mainly from lower fleet management and airframe and component overhaul revenue, mitigated in part by higher line maintenance revenue.

Expenditure at $247.1 million increased at a lower rate of 0.4% or $0.9 million as the current quarter benefitted from an exchange gain of $4.8 million, while increases in staff costs were mitigated by lower subcontract costs. For the quarter, share of profits of joint venture companies was $14.3 million, $3.2 million lower than the same quarter last year. However, contributions from associated companies increased by $1.6 million or 10.2% to $17.3 million. Basic earnings per share was 4.69 cents for the current quarter.

Hopefully, T4 would bring better news.

vested.

[weijian]

http://infopub.sgx.com/FileOpen/SIAENGCO...eID=437913
http://infopub.sgx.com/FileOpen/SIAENGCO...eID=437914

The Group posted a profit attributable to owners of the parent of $52.6 million for the third quarter of FY2016-17, an increase of $3.2 million or 6.5%. Profit this quarter included a $2.3 million gain on the partial disposal of an associated company, while the same quarter last year was impacted by provisions for closure costs and impairment of two associated companies. Operating profit of $25.2 million was $3.8 million or 13.1% lower than the same quarter last year. Revenue of $272.3 million saw a decrease of $2.9 million or 1.1%, mainly from lower fleet management and airframe and component overhaul revenue, mitigated in part by higher line maintenance revenue.

Expenditure at $247.1 million increased at a lower rate of 0.4% or $0.9 million as the current quarter benefitted from an exchange gain of $4.8 million, while increases in staff costs were mitigated by lower subcontract costs. For the quarter, share of profits of joint venture companies was $14.3 million, $3.2 million lower than the same quarter last year. However, contributions from associated companies increased by $1.6 million or 10.2% to $17.3 million. Basic earnings per share was 4.69 cents for the current quarter.

Hopefully, T4 would bring better news.

vested.

T4 most probably will bring good news for SATS (that may explain its share price rise) but not really for SIAEC, based on the discussions we have had on SIAEC in the last few years. The challenges of SIAEC are not going to be fully resolved/counter-measured by increasing flights at Changi Airport as a whole.