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SIA Engineering faces rating downgrades, lower forecasts after worse-than-expected 1H results

Jeffrey Tan
Jeffrey Tan • 2 min read
SIA Engineering faces rating downgrades, lower forecasts after worse-than-expected 1H results
UOB KayHian has now rated the company as “sell” with a lower target price of $1.52 from $1.89 previously.
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Following SIA Engineering’s dismal 1HFY21 results that came below analysts’ expectations, the airlines services provider has been slapped with rating downgrades and lower forecasts considering its prospects ahead.

UOB KayHian has now rated the company as “sell” with a lower target price of $1.52 from $1.89 previously.

DBS Group Research, too, has now rated the company as “hold” with a reduced target price of $1.60 from $2.40 previously.

OCBC Investment Research, however, has kept its “hold” rating for the company with lower fair value of $1.66 from $1.75 previously.

All three brokerages have slashed their forecasts for SIA Engineering.

UOBKH has widened its FY21 loss forecast to $36.9 million from $7 million previously to factor in 1HFY21’s impairment loss.

See also: RHB maintains ‘buy’ call on Food Empire despite recent earning cuts and growing coffee prices

It has also lowered its FY22 earnings forecast by $67 million after accounting for lower associate earnings and slower rate of recovery.

“We are now less convinced of [the company’s] ability to make a turnaround post-Covid-19, and believe that [its] stock price is likely to head towards book value if earnings do not recover in FY22,” UOBKH analyst K Ajith writes in a Nov 5 report.

On the other hand, DBS is now projecting a full-year loss of about $16 million in FY21, which it says could be “significantly higher” if not for the Jobs Support Scheme grants.

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The brokerage has also cut its FY22 earnings forecast by 43% on expectation that SIA Engineering’s line maintenance business will recover to about 40% to 45% of pre-Covid-19 levels.

It warns that there could be further downside to its FY22 estimates if the recovery is even slower.

“We turn more conservative on earnings,” DBS analysts Suvro Sarkar and Jason Sum write in a Nov 5 report.

Meanwhile, OCBC has pared its FY21 and FY22 profit after tax and minority interest by 130% and 35%, respectively, on impairment loss and longer travel recovery.

The brokerage warns that international leisure travel demand could take a longer time to return since it believes that the current travel demand mainly comprises essential business trips.

“The recovery of [SIA Engineering] will largely depend on the recovery of air travel,” OCBC analyst Chu Peng writes in a Nov 5 note.

As at 2.56 pm, SIA Engineering was up 1 cent or 0.6% at $1.62 with 351,500 shares changed hands.

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