SIA Engineering Co (SIAEC) is poised to continue flying high despite the global economic slowdown, thanks to its base of premium airline customers and niche capabilities.
'We are well hedged with respect to any particular change that impacts the airline business,' declared the company's chief executive William Tan.
Speaking to reporters at the sidelines of the MRO Asia Conference where he presented a keynote address, Mr Tan said his company had, over the years, 'consciously' positioned itself at the premium end of the business.
'We have positioned ourselves in the right market space to service the super-efficient new-generation aircraft which will continue to be deployed by airlines,' he said, referring to aircraft such as the A380s and B777-300ERs. 'We have the first-mover advantage through our investments in infrastructure and human resources in this segment. And because of our ability to provide end-to-end life-cycle fleet maintenance solutions through our tie-ups with OEM aircraft manufacturers like Boeing and Airbus, we don't have too many competitors on our playing field.'
The mainboard-listed SIAEC, which is 80 per cent owned by Singapore Airlines, gets about 70 per cent of its business from its parent. But its 22 joint-venture companies in seven countries accounted for 50 per cent of SIAEC's $253 million earnings in FY2007-08.
SIAEC also accounts for about half of Singapore's aerospace output.
'This is a cashflow business,' Mr Tan added. 'Our customers pay us a deposit upfront before they bring their planes in, and pay in full before they take their equipment out.'
And that, he added, enables SIAEC to be generous with its shareholders.
The company, which has informally committed to paying out half its cash, distributed some $200 million of the $450 million cash on its balance sheet last year. The payout of 20 cents per share translated to a dividend rate of 8.5 per cent.
While Mr Tan declined to elaborate on the company's current financial numbers, citing its 'blackout' period prior to its release of second-quarter results next month, the fact that it has been operating at full capacity suggests it will not disappoint shareholders.
Looking ahead, he reiterated that his company's earnings visibility remained strong.
'We know the aircraft deliveries for our customers, and we have good visibility of what's ahead in terms of demand for services. There is no reason for concern for the next six months.'
Still, SIAEC's stock has been pummelled, amid the global market turmoil, to half its value over the past 12 months, closing at $2.25 yesterday.
But Mr Tan remained unperturbed.
'The market will determine our fair price over time,' he said. 'In the meantime, we will focus on doing our business right. In time, people will recognise the strength of our business. But right now, our price-earnings multiple is ridiculous. But we'll just let our P&L speak for itself.'
This article was first published in The Business Times on October 15, 2008.
