SIA Engineering reports 1.6% lower 2Q earnings of $38 mil on revenue decline
https://www.theedgesingapore.com/sia-en ... ue-decline
SIA currently has close to 78% stake in its MRO unit and the benefits of keeping SIA Engineering listed is not entirely apparent, given the low liquidity of the stock.
It can be argued that it is important for SIA Engineering to retain the perception of being an independent MRO provider as it has to bid for work from other airlines in addition to parent airline jobs. Roughly 40% of SIA Engineering’s revenue is driven by non SIA customers.
Our best estimate is that the premium would be roughly 10-30% above last close, which would imply an offer price of between S$2.75 and S$3.26 per share.
Current valuations for SIE are at multi-year lows at about 17x forward PE and dividend yield is healthy at close to 4.5%. Hence, downside risks are limited even if the privatisation does
not materialise.
It would cost SIA S$748m to privatise SIA Engineering at S$3.01 per share for the remaining shares it does not already own (22.2%). Assuming cost of debt of 3% and six months’ contribution in FYE Mar ’20, this would provide a marginal uplift of 1% to SIA’s FY20F
earnings and 2% to its FY21F earnings.
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