The aviation sector faced unprecedented challenges during the COVID-19 pandemic, with travel restrictions bringing global air travel to a near standstill. Passenger numbers plummeted, airlines grounded fleets, and airports became eerily quiet. This resulted in significant financial strain across the industry, leading to layoffs, furloughs, and in some cases, bankruptcies.
However, as we move a couple of years beyond the pandemic’s peak, the aviation industry is experiencing a much-needed take-off. The easing of travel restrictions, coupled with the rollout of vaccination programs and effective public health measures, has allowed for a gradual return to international travel. This resurgence is fueled by a surge in pent-up demand from individuals eager to resume business trips, vacations, and reunions with loved ones. Airlines are ramping up operations, and airports are once again bustling with activity.
Why Invest In Airline & Aviation Stocks
Aviation is a critical component of the global economy, facilitating international trade, tourism, and business travel. Governments and private sectors worldwide continue to invest heavily in airport infrastructure, technology, and services to accommodate future growth and improve efficiency. Such investments enhance the capacity and quality of aviation services, making the sector more attractive for long-term investments.
Aviation companies often have diverse revenue streams. For instance, airlines generate income from passenger services and cargo operations, loyalty programs, and ancillary services such as in-flight sales. Similarly, companies like SATS Ltd and SIA Engineering Company Ltd provide various services, from ground handling and catering to aircraft maintenance, repair, and overhaul (MRO). This diversification helps mitigate risks and can lead to more stable financial performance.
Major players in the aviation sector often have strong market positions and significant brand loyalty. Companies like Singapore Airlines Ltd are renowned for their quality of service, safety, and reliability. This strong brand equity can translate into a loyal customer base, which is crucial for sustained revenue generation, especially as travel demand returns to pre-pandemic levels.
Singapore, a key aviation hub in the Asia-Pacific region, is at the forefront of this resurgence. Known for its strategic location, world-class infrastructure, and efficient services, Singapore’s aviation sector is poised to benefit significantly from the recovery in global travel.
With that, let’s examine the financial health and prospects of four major players in Singapore’s aviation ecosystem: Singapore Airlines Ltd (SGX: C6L), SATS Ltd (SGX: S58), SIA Engineering Company Ltd (SGX: S59), and Singapore Technologies Engineering Ltd (SGX: S63).
Singapore Airlines Ltd (SGX: C6L)
Singapore Airlines (SIA) (SGX: C6L), the national carrier of Singapore, is a leading global airline known for its top-notch service and extensive network. SIA’s latest financial results showed strong signs of recovery, with increasing passenger loads.
For the financial year ended 31 March 2024 (FY2023/24), SIA’s total revenue rose 7% year-on-year to a record S$19.01 billion, up from S$17.78 billion last year. While passenger-flown revenue grew 17.3% to S$15.69 billion, cargo-flown revenue fell 41.2% to S$2.12 billion.
Meanwhile, SIA’s net profit improved by 24% year-on-year to a record of S$2.68 billion due mainly to better operating performance, a net interest income versus net finance charges a year before, lower tax expense, and a share of profits versus a share of losses of associated companies from the previous year.
Shareholders will be delighted to note that a final dividend of 38 cents per share for FY2023/24 was declared. Including the interim dividend of 10 cents per share paid, the total dividend for the latest financial year will be 48 cents per share. This is up 20.8% from the total dividend of 38 cents per share declared a year back.
Looking ahead, SIA said that the demand for air travel remains healthy in the first quarter of FY2024/25 due to a strong pick-up in bookings to North Asia and Southeast Asia.
While cargo yields have held above pre-pandemic levels for the financial year, there is downward pressure due to increases in belly-hold capacity. The airline added that it faces headwinds from intense competition, increased costs, and geopolitical tension.
At SIA’s share price of S$6.75, it has a price-to-earnings (P/E) ratio of 11x and a dividend yield of 7.1%.
SATS Ltd (SGX: S58)
SATS (SGX: S58), a leading provider of inflight catering and ground handling services at major airports worldwide, is another key player in Singapore’s aviation sector. SATS’s latest financial results reflect the strong recovery in the aviation sector.
For the full year ended 31 March 2024 (FY24), SATS revenue almost tripled to a record of S$5.15 billion, up from S$1.76 billion a year ago. This was because the aviation industry rebounded from the pandemic and the consolidation with Worldwide Flight Services (WFS), the world’s largest air cargo handling firm, acquired in April 2023.
In terms of business breakdown, Gateway Services revenue grew 354.8% to S$4.0 billion, while Food Solutions revenue grew 27.4% to S$1.1 billion.
SATS became profitable again in FY24, reporting a net profit of S$56.4 million, compared to a loss of S$26.5 million a year back.
As SATS returns to profitability, it has resumed its dividend payment as promised. The company declared a final dividend of 1.5 cents per share.
Looking ahead, Kerry Mok, SATS’ president and chief executive, said:
“We have begun delivering on our priorities of restoring profitability, optimizing capital structure, and increasing free cash flow in FY24. We are staying focused on working diligently, around the clock and around the world, to capture even more synergies from the ongoing SATS-WFS integration, streamline our portfolio, and reduce debt. We are committed to developing SATS into a market leader and responsible corporate steward that is future-ready and financially sustainable.”
SATS shares last traded at S$2.80 each, translating to a P/E ratio of 73x and a dividend yield of 0.5%.
SIA Engineering Company Ltd (SGX: S59)
SIA Engineering (SGX: S59), a subsidiary of Singapore Airlines, is a world-renowned provider of aircraft maintenance, repair, and overhaul (MRO) services. The company’s recent financial results demonstrate a resurgence in MRO demand as airlines resume operations.
SIA Engineering reported a revenue growth of 37.5% to S$1.09 billion for FY2023-24, reflecting continued recovery in demand for MRO services. The company also posted its first full-year operating profit since the start of the pandemic. With the improved share of profits from associated and joint venture companies, net profit grew 46.4% year-on-year to S$8.7 million.
The MRO outfit has declared a final dividend of 6.0 cents per share for FY2023-24. Including the interim dividend of 2.0 cents per share already paid, the total dividend payout will be 8.0 cents per share. This is up 45% from 5.5 cents per share declared a year back.
The future looks promising for SIA Engineering. Demand for its MRO services is healthy, and global air travel is edging closer to pre-pandemic levels.
However, challenges like a tight labour market, supply chain problems, and inflation are causes for concern for the group.
To address these issues and improve their ability to serve customers, they focus on cost control and getting more work done through their Continuous Improvement programme. It also continues to pursue strategies to amplify its MRO capabilities, capacities and geographical footprint through partnerships.
SIA Engineering shares last traded at S$2.34 each, translating to a P/E ratio of 37x and a dividend yield of 3.5%.
Singapore Technologies Engineering Ltd (SGX: S63)
Singapore Technologies (ST) Engineering (SGX: S63) is a diversified engineering conglomerate with a major presence in the aerospace sector.
In a business update for the first quarter of 2024, ST Engineering said revenue increased 18% to S$2.7 billion, supported by growth across its Commercial Aerospace (CA) and Defence & Public Security (DPS) segments.
Both segments posted double-digit percentage revenue growth. However, the third and final segment, Urban Solutions & Satcom (USS), saw its revenue fall by 1%.
Source: ST Engineering Business Update
ST Engineering’s CA sector, which contributed to the majority of total revenue, saw 32% revenue growth to S$1.2 billion on the back of broad-based growth and strong growth in engine MRO. The group had an order book of S$27.7 billion at the end of March 2024, of which around 23% is expected to be delivered in the remaining period of this year.
ST Engineering maintained a steady dividend payout, declaring an interim dividend of 4.0 per share, the same as the previous quarter.
The engineering conglomerate’s share price of S$4.10 has a P/E ratio of 22x and a dividend yield of 3.9%.
Taking To The Skies
The Singapore aviation sector is experiencing a welcome recovery, and the four companies analysed here are all well-positioned to capitalise on this trend.
From a pure-play airline company to companies supporting the aviation sector, investors have plenty to choose from.
However, those seeking exposure to the local aviation sector should carefully analyse the company’s financial performance, management prowess, and future prospects before making an investment decision.
Read Also: How Much You Can Earn As A Singapore Airlines (SIA) Air Stewardess/Air Steward
The post Aviation Stocks In Singapore: SIA (C6L); SATS (S58); SIA Engineering (S59); ST Engineering (S63): Latest Results, Dividends, and Growth Prospects appeared first on DollarsAndSense.sg.
