Topline strength dragged by forex losses
- 3QFY24 net profit of S$27m (+110% yoy) was a slight miss on forex losses of S$3.9m. 3QFY24 revenue (+40% yoy) was c.9% above FY15-19 levels.
- We expect heightened MRO demand and elevated associate profits to drive FY25F EPS growth of 24%, but staff cost pressures likely to remain a drag.
- Reiterate Add at an unchanged TP of S$2.70. Current valuation is decent at 17x CY25F P/E (1 s.d. below 2010-19 mean), in our view.
3QFY24 revenue c.9% above pre-Covid, but forex costs dragged
SIA Engineering’s (SIE) 3QFY3/24 net profit of S$27m (-17% qoq, +110% yoy) was slightly below our S$31m estimate, with 9MFY24 net profit forming 70%/71% of our/Bloomberg consensus’ full-year forecasts. 3QFY24 revenue grew strongly to S$292m (+16% qoq, +40% yoy) on increased air traffic volume at Changi Airport. 3QFY24 EBIT came in at a S$3.4m loss (3QFY23: S$12.5m loss), due largely to S$3.9m forex losses, excluding which, EBIT would be positive at S$0.5m. 3QFY24 associate profits was in line at S$24m (-15% qoq, +23% yoy).
Both airframe and engine likely saw healthy operating trends
We believe the strong 3QFY24 revenue growth was driven by healthy recovery in both the airframe and engine segments (undisclosed by SIE). Flights handled by SIE at Changi Airport in 3QFY24 recovered well to 92% of 3QFY20 levels, as reported by SIE, in tandem with increased commercial flight arrivals (+23% yoy) into Singapore. Total checks performed in Singapore was up 25% yoy on increased aircraft utilisation. As of end-Dec 23, passenger volumes at Changi Airport hit 90% of end-Dec 19 levels, with the Singapore Ministry of Transport expecting volumes to reach pre-Covid levels in 2024F.
Expect rising associate profits, while staff costs should stay high
We believe 49%-owned Eagle Services Asia (ESA) had commenced its induction of geared turbofan (GTF) engines in 3QFY24 and expect volumes to ramp-up further in the coming quarters, in line with RTX Corp’s (RTX US, NR) guidance. On the opex front, we estimate 3QFY24 labour cost pressure worsened to c.56% of revenue (FY15-19 average: c.45%). We expect staff costs to remain elevated in FY25-26F as SIE faces challenges in sourcing skilled mechanics, but ongoing cost cuts and productivity gains from digitalisation efforts should help as a buffer.
Reiterate Add, with an unchanged TP of S$2.70
Reiterate Add as we still see a healthy earnings rebound ahead, driven by improved operating profitability and elevated associate profits. Our TP of S$2.70 is still based on 19.5x CY25F P/E (0.5 s.d below 2010-19 mean). Re-rating catalysts: strong profits from ESA, easing labour cost pressures. Downside risks: an economic slowdown impacting maintenance, repair and overhaul (MRO) volumes, and margin erosion from inability to pass on elevated staff costs.
