Turbulent quarter: SIA Engineering remains grounded as profits slide 22% in Q2

Share of profits of JVs and associates dropped 28.8%.

SIA Engineering has weathered a difficult quarter, as its 1QFY15 profits declined by 22.3% to S$53.5m.

According to OCBC, this made made up only 18.9% and 19.0% of our and consensus FY15 forecast respectively.

“1QFY15 operating profit decreased 25.3% to S$20.7m primarily due to higher subcontract costs (+33.3% to S$43.6m) though staff costs were lower (-8.6% to S$51.3m). Share of profits of JV and associates dropped 28.8% to S$30.6m, due to a S$11.6m decrease in contribution from the engine repair and overhaul centers,” noted OCBC.

Meanwhile, Maybank Kim Eng reports that EBIT margin contracted to merely 7.0%, its lowest since 1QFY3/10, as subcontract cost rose 4.5% YoY. Share of profits of associates and JVs fell 28.8% YoY to $30.6m due to a 37.8% fall in contribution from the engine repair and overhaul centres.

“Management turned bearish on its outlook, citing challenges from decline in heavy checks,
reduction in engine shop visits and rising business costs,” stated Maybank Kim Eng.

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