Is SIA Engineering a GOOD Buy Now? (SGX: S59 / S59.SI)
SIA Engineering (a subsidiary of Singapore Airlines Limited) is listed in SGX with the ticker symbol S59.SI / SIAE.SI, it is currently has a share price of SGD$2.230.
At this price, SIA Engineering is valued at a price-to-book ratio of 1.510 and a trailing distribution yield of 0.00%
With the current valuation, would I invest in it?
Let’s go through it using my 7 steps guide and see how I pick the Best Singapore Dividend Stocks.
Disclaimer: Information should be used for entertainment purposes only. Full disclaimer below.
By understanding how to identify a good dividend stock, here are the 7 steps I use to pick the Best Dividend Stocks in Singapore.
- Debt to Equity Ratio
- Dividend Yield
- Dividend payout ratio
- EPS Growth Rate
- Return of Equity (ROE)
- Price-to-Book Ratio
- MOAT
Recommended Read: Is dividend investing suitable for young investors?
Business Background
SIA Engineering Company (SIAEC) Limited is based in Singapore and was incorporated in 1982.
SIA Engineering was part of Singapore Airlines until 1992, Singapore Airlines transfer its maintenance, repair, and overhaul activities (MRO) into an existing subsidiary to form SIA Engineering Company.
SIA Engineering provides service to over 200 flights into and out of Singapore Changi Airport each day for more than 60 international passenger and cargo carriers
Segments of Business
- Airframe and Line Maintenance
- Engine and Component
Airframe and Line Maintenance
Service provided in these sub-segments.
- Airframe maintenance
- Line maintenance
- Fleet management programs
Service Provided
- Schedule routine and specialized maintenance and overhaul
- Modification and refurbishment programs
- Aircraft certification
- Technical and non-technical ground handling services
- Provision of aircraft ground support equipment and rectification work
- Fleet technical management
- Inventory technical management services
Engine and Component
Service provided in these sub-segments.
- Component overhaul
- Engine Repair
- Overhaul services
Service Provided
- Manufactures aircraft cabin parts and tooling for the aerospace industry
- Repair and overhaul services for hydro-mechanical equipment for aircraft
- Engine maintenance, parts repair, storage and preservation, material management, on-wing, and engine testing services
Joint Ventures
SIA Engineering has invested in 23 joint ventures on manufacturing of original equipment manufacturers, or OEMs, aircraft component repair, engine component repair, and overhaul services in both Singapore and overseas.
- Singapore, Australia, China, Hong Kong, Indonesia, the Philippines, Taiwan, and Ireland.
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Debt-To-Equity Ratio
Check for: Less than 0.5 D/E Ratio
Looking at the latest financial report.
SIA Engineering have a D/E ratio of 0.024.
This is much lower than the 0.5 D/E Ratio.
A D/E ratio of less than 0.5 will means that the company will be able to fulfill its debt obligation and there is a low risk of the company defaulting.
With a D/E of lower than 0.5, it passes my criteria.
To understand this stock better, I’ve done a quick look at the past Debt to Equity Ratio for SIA Engineering:
| Year | Debt to Equity (D/E) Ratio |
|---|---|
| 2022 | 0.025 |
| 2021 | 0.055 |
| 2020 | 0.069 |
| 2019 | 0.013 |
| 2018 | 0.015 |
Looking at the past data of SIA Engineering, it seems that the D/E ratio has always been less than 0.5, and in fact, it has always been less than 0.1 D/E Ratio.
The D/E ratio only start to increase after the outbreak of the pandemic in 2019 which is reflected by the increase in the D/E ratio in the years 2020 and 2021.
And in the year 2022, the D/E has dropped, as flights recovered and Singapore is getting to the post-pandemic era.
As SIA Engineering’s business is highly dependent on the aviation industry, the recent pandemic has impacted SIA Engineering’s bottom line greatly.
But the D/E ratio shows that the company is able to keep its leverage low even in times of trouble.
The company has less than a 0.5 D/E ratio
My Opinion: Pass
Dividend Yield
Check for: More than a 2.5% dividend yield
For the Year 2022, SIA Engineering pay a dividend of SGD 0.00 which is about 0.00% in dividend yield.
SIA Engineering did not pay any dividends for the years 2021 and 2022.
0.00% yield is lower than my target of 2.5%.
Looking at the distribution history, the last dividend payment is in the year 2020, which is probably due to the pandemic.
| Year | Dividend (TTM) SGD |
|---|---|
| 2022 | 0.00 |
| 2021 | 0.00 |
| 2020 | 0.05 |
| 2019 | 0.11 |
| 2018 | 0.12 |
| 2017 | 0.18 |
For dividend stocks, I’ll prefer if they will pay a stable dividend that is growing.
The dividend yield is also much lower than the risk-free rate (CPF OA Account) of 2.5%. I will give it a verdict of fail.
My Opinion: Fail
Dividend Payout Ratio
Check for: Less than 80% dividend payout ratio
At the time of writing, I’ve done a quick check with online tools for stock info, it shows that the dividend payout ratio for SIA Engineering is 0.00% which basically makes this section non-applicable.
With a payout ratio of 0%, it means the company retained all earnings if any, and did not payout any dividend for the financial year.
Although SIA Engineering did not payout any dividends for 2021 to 2022, I think it is the right decision.
It is better for the company to have enough cash flow to operate the business, especially when the business is greatly impacted by the pandemic.
Although SIA Engineering fails this section, it may still be a good dividend stock in the future.
My Opinion: Fail
EPS Growth Rate
Check for: More than 10% EPS Growth
Here, we will like to see an EPS growth of 5 years or more.
A quick check on the financials.
The EPS 5 year growth rate is “Blank”!
There is no Earning Per Share (EPS) growth for SIA Engineering!
Knowing SIA Engineering is in the aviation industry, low EPS is understandable due to the pandemic. Thus we will deep dive into the EPS history to understand the company further.
| Year | EPS |
|---|---|
| 2022 | 0.06 |
| 2021 | -0.01 |
| 2020 | 0.17 |
| 2019 | 0.14 |
| 2018 | 0.16 |
Lower EPS for 2022 is probably due to the pandemic.
Even so, I may not want to invest in a company that is not growing its EPS.
My Opinion: Fail
High Return Of Equity (ROE)
Check for: More than 10% ROE
ROE is the most important metric that I value.
Return on Equity (ROE) is often used to measure the management’s ability to make money.
At the time of writing, the ROE of SIA Engineering have an ROE of 4.3%.
A deep dive into the history of SIA Engineering shows that its ROE turns negative in 2022.
| Year | Return on Equity (ROE) |
|---|---|
| 2022 | 4.3% |
| 2021 | -0.7% |
| 2020 | 12.3% |
| 2019 | 10.7% |
| 2018 | 12.4% |
SIA Engineering’s historical ROE shows to be above 10% ROE before the pandemic. Even in 2020, it is still able to maintain a high ROE. But in 2021, it has a negative ROE of -0.7%.
The negative ROE is probably due to the pandemic and it is temporary, in 2022 the ROE has returned to positive.
My Opinion: Fail
Price-To-Book Ratio
Check for: a P/B Ratio of less than 1.8
SIA Engineering has been around for almost 40 years, and if an investor invests in SIA, they will probably know SIA Engineering.
If I have to guess its P/B ratio, the price of the stock will most likely be traded around its valuation (book value).
At the time of writing, the current P/B ratio of SIA Engineering is 1.510.
Meaning, it is trading slightly above its book value.
My Opinion: Pass
MOAT
Check for: Not just having a MOAT, but a great MOAT
SIA Engineering is probably the most important company that ensures the smooth operation of aircraft coming in and out of Singapore Changi Airport.
Similar to SATS which provides food for the plane, SIA Engineering provides all the services required for an aircraft to fly safely in the air.
SIA Engineering is the only major aircraft servicing center that services all aircraft that come in and out of Singapore Changi Airport.
SIA Engineering’s Top Competitors
- SIA Engineering, service in Singapore, Philippines
- Aviation Technical Services (ATC), service in the United States
- Hong Kong Aircraft Engineering (HAECO), service in Hong Kong, China, United States
- ADC Engineering, service in the United States
- Interstate Engineering, service in the United States
SIA Engineering Licensing
More than twenty national aviation regulatory authorities have issued approvals to the company to provide maintenance, repair, and overhaul services to aircraft subject to their jurisdiction.
- Civil Aviation Authority of Singapore (CAAS)
- United States Federal Aviation Administration (FAA)
- European Aviation Safety Authority (EASA)
- Japan Civil Aviation Bureau (JCAB)
- Etc.
With its base in Singapore, SIA Engineering serves over 60 airlines passing through Singapore.
In terms of MOAT, SIA Engineering has a strong ” Toll Bridge MOAT”.
Not only it requires the government to issue licenses to allow the operation of companies such as SIA Engineering.
Approval from the authorities from different countries is required for the operation of a company similar to SIA Engineering.
The toll bridge moat prevents competitors from coming into the picture, allowing SIA Engineering to have most of the business that comes through Singapore Changi Airport.
With Singapore Changi Airport rising to become one of the busiest airports in the world, I think SIA Engineering will have a bright future without much if any competition.
In my opinion, SIA Engineering’s MOAT is very strong.
My Opinion: Pass (Great!)
Overall
SIA Engineering has a final score of 6/10.
SIA Engineering has low EPS, a negative ROE, and no dividend payout.
These unfavorable financial results occur only after 2019’s pandemic, which will mean it might be temporary.
On the bright side, its D/E ratio is quite amazing.
Nonetheless, SIA Engineering has an amazing Toll bridge MOAT which will probably help the company to recover when the aviation industry recovers.
For now, I don’t think I will invest in this unless the price of the stock falls way below my margin of safety.
Personally, I think the pandemic will continue impacting the company for the near foreseeable future.
Below is how I’ve scored SIA Engineering.
| Metric | Weightage | Score |
|---|---|---|
| Debt to Equity Ratio | High (2) | 2 |
| Dividend Yield | Low (1) | 0 |
| Dividend payout ratio | Low (1) | 0 |
| EPS Growth Rate | Low (1) | 0 |
| High Return of Equity (ROE) | Low (1) | 0 |
| Acceptable Price-to-Book Ratio | Low (1) | 1 |
| MOAT | Very High (3) | 3 |
| Total | NA | 6 |
Why do I find some metrics more important than others?
There are 3 attributes in a company that Warren Buffett wants in particular:
- Wonderful Company at Fair Price
- Stable & Understandable Business
- Vigilant Leadership in Risk Management
This translate to the following 3 metrics I have on my list:
Thus, for these metrics, I will put a higher weightage on my scoring.
Question.
Would you invest in this now?
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