SIA Engineering Company

[Contrarian]

Lucky to collect quite a bit. I just need 1 to 2 of such big guns every year... and then whack big... then go back cruise pilot...

It's rather illiquid though and it took me a while to collect a tiny stake without having to chase the price up (Yes, volume is usually that low). Unfortunately for me, it'd continued moving up a couple of cents every few days and I'd not been able to build up a more meaningful stake. Even today, with STI almost -60, it still refused to correct! Gotta be very patient here.

Haha I would think SIAEC is not that illiquid, being a blue chip in the STI after all. There are at least 50-100 lots transacted daily on average.

Unless you are a big collector, 50 lots is already close to $200,000; so I would think it's easy to accumulate a position slowly, over time; if one pumps in just $10,000 to $20,000 for each purchase.

[Musicwhiz]

Lucky to collect quite a bit. I just need 1 to 2 of such big guns every year... and then whack big... then go back cruise pilot...

Hi, great! It's frustrating now that investors suddenly turn optimistic on SIAEC. Then again, patience is a virtue.

Let's wait and see if there are any more business development updates.

[weijian]

2011 2010 2009 2008 2007 2006 2005 2004 (Year)
218.2 194.6 172.5 214.8 127.3 103.3 76.1 45.2 (interim+final dividend)
261.2 236.1 260.6 253.8 242 230.6 175.3 140 (Net income)
340.3 225 143.5 144.4 173.5 215.9 91.1 114.3 (FCF - operating+investing)
0.84 0.82 0.66 0.85 0.53 0.45 0.43 0.32 (Dividend/Net income ratio)
0.64 0.86 1.20 1.49 0.73 0.48 0.84 0.40 (Dividend/FCF ratio)


Hi all,
Above is the historical dividend payout ratios to Net income and FCF, for SIAEC. The dividend payouts seem to 'step up' after GFC2008. Does anyone know what is the DIVIDEND POLICY for SIAEC? (I can't seem to find it at the website or the annual reports)

[Musicwhiz]

Hi all,
Above is the historical dividend payout ratios to Net income and FCF, for SIAEC. The dividend payouts seem to 'step up' after GFC2008. Does anyone know what is the DIVIDEND POLICY for SIAEC? (I can't seem to find it at the website or the annual reports)

As far as I know it, SIAEC does not have a defined dividend policy or a fixed or indicative payout ratio. But let's observe what we can from the last few years' financials.

Share of Profits from Associates and JVs:-

FY 2008 - S$157.9 million
FY 2009 - S$173 million
FY 2010 - S$129.7 million
FY 2011 - S$144.4 million
9M FY 2012 - S$110.9 million

Dividends from associates and JV companies (under ICF in CFS):-

FY 2008 - S$89.0 million
FY 2009 - S$115.4 million
FY 2010 - S$153.4 million
FY 2011 - S$165.3 million
9M FY 2012 - S$90.3 million

The above illustrates that there has been a steady uptrend in both share of profits and dividends received (as cash flows) since FY 2008. Their stable of associates and JVs has been contributing more and more to share of profits and providing a lot of cash to the business (interestingly, if you look at 9M FY 2012 results the dividends received from assoc and JV were even MORE than the OCF!).

To observe the dividends, let's look from FY 2008 onwards.

FY 2008 - Interim 4c, Final 16c
FY 2009 - Interim 5c, Final 11c
FY 2010 - Interim 5c, Final 13c
FY 2011 - Interim 6c, Final 14c, Special 10c
FY 2012 - Interim 6c, Final ??

It should be noted that there has been an increase in the total dividend paid out (with exception of FY 2008), with interim increasing at a steady rate over the last 5 years. For FY 2011 (last year), note that the cash balance of SIAEC had accumulated to S$581.4 million (as at March 31, 2011); and that was the reason for the declaration of a special 10c dividend. There had only been two other instances of special dividends, in FY 2004 and FY 2006 (both 20c each).

Cash Balance of SIAEC stood at S$388.3 million as of Dec 31, 2011. 4Q is usually a period where a lot of cash comes in, as evidenced by 4Q FY 2011 where cash balances from assoc and JV jumped up and pushed the ending cash balance to a record high back then.

I am fairly confident that SIAEC will be able to maintain the 14c final dividend which it paid out last year. With the ongoing financial crisis in Europe, there is a possibility of them dropping the dividend to 10c or 12c to conserve cash. But with the recovery taking root and the aviation industry still growing, I feel dividends will be poised to improve and probably will surpass FY 2011 in a few years time, if not in FY 2013.

(Vested)

[weijian]

Hi Musicwhiz,
Thanks for the comprehensive reply. I have read your analyses on your blog (though inactive now). I am currently reviewing SIAEC as a dividend play profile - so having a dividend policy that is official and declared is important (at least to me) as well. For example, some of the other dividend plays below do have it:

(1) VICOM - at least 50% of net profit, (2) SMRT - at least 60% of new profit.

Of course, end of the day, the ABILITY to do so, is still the most important.

[yogi]

Musicwhiz Wrote:
I am fairly confident that SIAEC will be able to maintain the 14c final dividend which it paid out last year. With the ongoing financial crisis in Europe, there is a possibility of them dropping the dividend to 10c or 12c to conserve cash. But with the recovery taking root and the aviation industry still growing, I feel dividends will be poised to improve and probably will surpass FY 2011 in a few years time, if not in FY 2013.
(Vested)

Here is trend of revenue, profit (net and from associates/JV), EPS, dividend for last decade.

Year - Revenue - Net Profit - Ass/JV Profit - EPS - Div

FY2002 - 835m -- 223m - 0m --- 22.30 - 4.5
FY2003 - 878m -- 205m - 0m --- 20.50 - 4.5
FY2004 - 678m -- 139m - 0m --- 14.00 - 24.5
FY2005 - 807m -- 175m - 75m -- 17.21 - 7.5
FY2006 - 959M -- 230m - 105m - 22.45 - 30
FY2007 - 977m -- 242m - 139m - 22.97 - 12
FY2008 - 1009m - 253m - 157m - 23.71 - 20
Fy2009 - 1045m - 260m - 173m - 24.20 - 16
FY2010 - 1006m - 236m - 129m - 21.88 - 18
Fy2011 - 1106m - 258m - 144m 23.77 - 30

Looking at this trend, I observe following:

1. Over a decade, though company's revenue has increased albeit slowly, operating profit (NetProfit - Associate/JV Profit) from company's own MRO, fleet mgmt etc has decreased, resulting in decreased ops % margins. This shows that its operation in Singapore is no more competetive.
2. Over this period, the Div/EPS ratio has been increasing and in last few yeras it has reached almost close to 1 (or even exceed 1 in some years 2011, 2006, 2004) on average.
3. To sustain the growth in JV/Associate profit, it has to continue to invest in new JV/Associate.
4. Consistent appreciation of S$ (most of JV/Associate profit comes from outside of singapore) will have negative impact on future div from Associates/JV

Considering above trend, its hard to see how the dividend frowth of the past will continue though it may remain flat.

My 2cs..

(vested)

[cif5000]

Share of Profits from Associates and JVs:-

FY 2008 - S$157.9 million
FY 2009 - S$173 million
FY 2010 - S$129.7 million
FY 2011 - S$144.4 million
9M FY 2012 - S$110.9 million

Dividends from associates and JV companies (under ICF in CFS):-

FY 2008 - S$89.0 million
FY 2009 - S$115.4 million
FY 2010 - S$153.4 million
FY 2011 - S$165.3 million
9M FY 2012 - S$90.3 million

The above illustrates that there has been a steady uptrend in both share of profits and dividends received (as cash flows) since FY 2008. Their stable of associates and JVs has been contributing more and more to share of profits and providing a lot of cash to the business (interestingly, if you look at 9M FY 2012 results the dividends received from assoc and JV were even MORE than the OCF!).

I don't see a steady uptrend in the share of profits.

[Musicwhiz]

Apologies. Barring the drop in profits for FY 2010 due to (presumably) the GFC, that was a blip. But for cash flows from assoc/JV, it has been s steady increase over the years.

SIAEC is indeed continuing to invest in assoc/JV by tying up with more companies and increasing their stable of such collaborations. I believe there were some announcements in Feb 2012 pertaining to these. The introduction of the low-cost long-haul airlines would also open up a new market segment for more entrants to come in; and they would need to purchase new aircraft and these require MRO services.

Finally, another trend I've noticed is that aviation industry continues to remain fairly resilient in terms of passenger flights, even though airlines are suffering from high oil prices. Tourists hit a new record high coming in to Changi Airport, and tourism in the region (including possibly Myanmar which is opening up) would ensure more planes need to fly and these would require servicing and maintenance.

(Vested)

[yogi]

Airline industry is well known for generating negative annual return over last 50 years.

Main reason I see is:

1. When economy does well, passengers travel more hence more revenue for airlines. But oil price also goes up hence hitting profit (around 60-70% cost contributed from oil).

2. When economy tumbles, oil price goes down but same time revenue reduces from less passengers travelling.

3. Off-course, huge capex investment on planes.

If airlines face pain, surely some pain will flow through to sencondry industries such as MRO, Fleet Mgmt etc. During tough time, airlines lay-down some of their planes hence less planes to services.

Bankrupcy of airlines is norm and not forgetting recent bankruptcies of airlines (American Airline in US, an budget airline in Europe, Kingfisher close to bankruptcies, except one budget airline all airlines making loss in India etc). If airlines go burst, it should affect SIA with risk of receivables from airlines.

Recent quarterly results of SIA shows that Account Receivables has increased substantially.

[Musicwhiz]

Airline industry is well known for generating negative annual return over last 50 years.

Main reason I see is:

1. When economy does well, passengers travel more hence more revenue for airlines. But oil price also goes up hence hitting profit (around 60-70% cost contributed from oil).

2. When economy tumbles, oil price goes down but same time revenue reduces from less passengers travelling.

3. Off-course, huge capex investment on planes.

If airlines face pain, surely some pain will flow through to sencondry industries such as MRO, Fleet Mgmt etc. During tough time, airlines lay-down some of their planes hence less planes to services.

Bankrupcy of airlines is norm and not forgetting recent bankruptcies of airlines (American Airline in US, an budget airline in Europe, Kingfisher close to bankruptcies, except one budget airline all airlines making loss in India etc). If airlines go burst, it should affect SIA with risk of receivables from airlines.

Recent quarterly results of SIA shows that Account Receivables has increased substantially.

I think you're posting in the wrong thread. SIA Engineering is about MRO, while SIA is an airline company.

MRO players are generally fairly resilient even during economic downturns. Take a look at the summary that cif5000 posted to get a handle on the revenues/profits and dividends even during the last GFC.

Thanks.