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SIAEC sinks to six-year low on talk of bulk sale

JP Morgan said to have offered 38.9m shares, representing a 3.5% stake in the company, at a huge discount in the market

Singapore

THE share price of SIA Engineering Company (SIAEC) plunged 9 per cent to more than a six-year low on Wednesday, prompting a query from the Singapore Exchange (SGX).

The tumble was triggered by talk that some 38.9 million shares have been offered at a huge discount in the market. The shares, representing a hefty 3.5 per cent stake, were said to be offered by JP Morgan at a price range of S$3.11 to S$3.30 each, implying a 4.6 to 10.1 per cent discount to the share price close of S$3.46 each on Tuesday.

On Wednesday, shares of SIAEC - a provider of maintenance, repair and overhaul (MRO) services for aircraft - hit S$3.15, the lowest since January 2010, before closing at S$3.21, down 25 Singapore cents, or 7.23 per cent.

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A staggering 10 million shares worth S$33 million changed hands, making it the sixth most active counter by traded value.

A source told The Business Times that JP Morgan had bought the block of shares from an institutional client and the investment bank was now looking to offload the shares.

"Due to SIAEC's low free float of 22 per cent, and low average trading liquidity of only 0.3 million shares per day in the past year, selling such a large block has the effect of dampening its share price,'' Corrine Png, chief executive of transport research firm Crucial Perspective, said.

JP Morgan did not reply to media queries at press time, but SIAEC said that apart from reports of JP Morgan's sale, it was unaware of any other possible explanation for the trading.

Haunting the stock further were rumours that Singapore Airlines (SIA), which holds a 77.7 per cent stake in SIAEC, may be looking to divest part of its stake in the company. But analysts were sceptical.

"We do not think that this is likely as SIAEC has higher margins and return on equity compared to SIA,'' said K Ajith, director of Asia Transport Research who has a "sell" rating on SIAEC and a target price of S$3.60 a share.

Other analysts also dismissed the speculation and said it was "unlikely to happen anytime soon". They said it did not make sense for SIA to rid or pare its stake because the national carrier would want control over the MRO of its fleet.

BT understands that SIA has not sold any SIAEC shares.

Some analysts believe there could be some funds switching to Garuda Maintenance Facility AeroAsia, the aircraft maintenance and repair unit of Indonesian flag carrier PT Garuda Indonesia Tbk. GMF AeroAsia has reportedly raised 1.27 trillion rupiah (S$128.4 million) from its initial public offer, priced at 400 rupiah a share.

"We had persistently highlighted that GMF would be a threat to SIAEC's operations, given its relatively lower operating cost,'' Mr Ajith said.

The global aircraft maintenance and repair market is still suffering from overcapacity and rate pressure, analysts said.

"The MRO market will be muted for a while,'' said Eugene Chua, an analyst at OCBC Securities. This is because most aircraft have extended the check interval visits.

While the MRO sector outlook remains challenging in the near term, Ms Png believes it will not get worse.

"We remain bullish on SIAEC's longer-term prospects,'' said Ms Png, who has an "outperform" call on SIAEC and a fair value estimate of S$4.50 on the stock.

She argued that SIAEC has made several game-changing partnerships with leading global original equipment manufacturers this new financial year, including its 49 per cent- owned Moog Aircraft Services Asia joint venture announced on Tuesday.

"These ventures will significantly enhance SIAEC's capabilities and competitive advantage, providing new earnings growth drivers in the longer term,'' Ms Png said.

For some analysts, SIAEC is still largely seen as a dividend-yielding stock, with its payout policy of 85-90 per cent of core earnings.

At S$3.23 a share, SIAEC is trading at 21 times its estimated earnings for the fiscal year ending March 2018. Analysts said it can comfortably sustain a dividend yield of 4 per cent a year.

"Historically, special dividends have also been announced every three years when its net cash balance swelled above S$500 million,'' Ms Png observed.

For the first quarter ended June 30, 2017, SIAEC posted a net profit of S$36.2 million compared to S$199.8 million a year ago. Excluding the impact of the divestment gain in the quarter ended June 30, 2016, its profit was S$1.8 million, or 4.7 per cent, down.

It boasted a cash balance of some S$629 million at the end of June 2017.

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