Describe about the Investment Analysis and Portfolio Management for SIA Engineering Company.
“SIA Engineering Company Limited”, incorporated in the year 1982, operates in Singapore along with its subsidiaries. It is directly a subsidiary of the “Singapore Airlines Limited”. The main operation of the company is to carry out overhaul, maintenance and repair activities primarily in the Asia-Pacific region. The main operating division of the company mainly provides the fleet management, overhaul operations and repair of engines facilities mainly by the overhaul and the repair segments of the company (Sg.finance.yahoo.com. 2016). Some of the general service provided by the company includes refurbishment programs, routine maintenance, specialized maintenance in the non- route segment. The division of company is responsible for the line maintenance of the company providing aircraft certification and different types of technical ground handling facilities such as equipment for ground support of aircraft and push back towing services. The company consists of total employee strength of 6188 employees. “SIA Engineering Company Limited” is also known to provide specialized service in passenger to freight conversion, aircraft painting and the various other types of the services related to train of the employees. Furthermore, the company is known to provide various types of services in overhauling, repairing and equipment maintenance for the Boeing and Airbus aircraft (Siaec.com.sg. 2016).
As per the recent financial performance, the company has shown several improvement in the attributable profit as it was able to increase it to 176.6 million. Although in the times the companies has experienced lower revenues as it fell by 0.7% (Siaec.com.sg. 2016).
Moreover, the expenditure of the company fell by 2.7%. As per the latest reports the share of profits from the related joint ventures organization companies of $94.2 million saw a decrease of 12.1 million. In several occasions, the company experienced a loss of $4.3 million and further made a provision for the impairments. In the positive side, the equities attributable to the owners of the parent company increased by 12.1 % than in March 2015 (Sg.finance.yahoo.com. 2016).
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|
Formula |
2015 |
2014 |
2013 |
Remarks |
|
A. Profitability [show the company’s ability and efficiency in generating profit] |
|||||
|
Gross profit ratio |
Gross profit x 100% Sales |
84.2% |
84.2% |
81.3% |
It has been observed that over the years the gross profit ratios has almost remained the same, hence the company needs to improve significantly.
|
|
Net profit ratio |
net profit x 100% Sales |
16.32% |
16.32% |
23.5% |
The net profit ratio signifies that the year 2014 and 2015 the company has suffered greatly in terms of net profit this is due to increase in the subcontract and staff cost.
|
|
Return on capital employed (ROCE) [CE=Equity+ Debt] |
net profit x 100% equity + debt |
19.3% |
19.54% |
21.04% |
The ROCE, access the measure of efficiency and profit making ability of the company with which the capital has been invested in the business. The decreasing amount of the ROCE percentage, clearly suggest that the company needs to improve in this field.
|
|
Return on assets (ROA) [TA= FA+CA] |
net profit x 100% Total Assets |
15.8% |
15.91% |
16.71% |
This ratio indicates the extent of profitability of the business related to the total assets available. The analysis of this clearly states that over the years the amounts of return on assets have decreased from 16.71 % on 2013 to 15.8% in the year 2015.
|
|
Return on equity (ROE) |
net profit x 100% Equity |
19.78% |
19.95% |
21.13% |
Return on equity shows the measurement of the units of profit on with respect to each dollar invested in a business. The decreasing amount of return on the equity further suggests that the company needs to improve in terms of shareholder equity to increase the return on network |
|
Formula |
2015 |
2014 |
2013 |
Remarks |
|
|
B. Liquidity [show the company’s ability in repaying short term debt] |
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|
Current ratio |
Current assets Current liabilities
|
3.01 |
3.13 |
3.01 |
The current assets of the company in form of cash, inventory and marketable securities have been stagnant with 3.01 both in the year 2013 and 2015. |
|
Quick ratio |
Current assets-inventories Current liabilities
|
2.31 |
0.71 |
2.33 |
As per the quick ratio evaluated by subtracting the inventory from the current assets, it has been observed that company has intended for quick ratio and needs to improve significantly. |
|
Stock turnover ratio [COGS=cost of goods sold] |
Closing inventory x 365days COGS |
204.60 days |
175 days |
184.21 days |
The increasing amount of stock turnover ratio is further suggested that needs to maintain adequate stock to replenish the used items. |
|
Debtors collection period A/R: acc receivable=debtor [refer to Notes] |
Trade A/R x 365 days Credit sales |
35days |
44days |
33 Days |
The decreasing amount of debtors collection period is further suggested that the increasing amount of time required to collect the trade debt are increasing which is negative sign for the company |
|
Creditor payment periods A/P: acc payabable=creditor [refer to Notes] |
Trade A/P x 365 days Credit purchases |
Nil days |
171 days |
160 Days |
The credit payment is also seen to be increasing in the chosen company which is a negative sign |
|
C. Gearing (= Leverage) [show the company’s capital structure] |
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|
Gearing ratio |
Debt equity |
2015 |
2014 |
2013 |
Remarks |
|
Debt ratio [TA= FA + CA] |
Debt Total Assets |
0.02 |
0.01 |
Nil |
This ratio is used to calculate the financial leverage is calculated by taking into consideration the long-term debt divided by the total asset. The increasing amount of debt to equity ratio the threat for the company however it is able to maintain the ratio under 0.5, which is a positive sign (Siaec.com.sg. 2016). |
|
Interest coverage ratio [int = financial charges or expenses] |
Net Profit Interest Expenses |
0.014 |
0.008 |
Nil |
This ratio depicts the profitability ratio and the debt ratio for accessing the ease of payment of interest of a company on the outstanding debt or the ability to pay the interest. Lower amount of this ratio suggests a negative impact on the company |
|
D.Investment [show the return to the company’s investors] |
|||||
|
Earnings per share (EPS) [refer to P/L statement] |
Net profit No. of shares |
16 cents |
16 cents |
24 cents |
The decreasing amount of earnings-per-share shows the degrading performance of the company. |
|
Price earnings (PE) |
Market price of shares EPS |
16.2 |
21.4 |
20.7 |
The various additions given under the price earnings ratio shows the evaluation of the company in terms of its relative share price earnings to the present share price. Decreasing amount of this suggests a negative impact on the shareholders and it needs to improve significantly (Siaec.com.sg. 2016). |
|
Dividend per share [find out from the annual report] |
Total Dividend paid No of shares |
19 cents |
22 cents |
22 cents |
The recent times the dividend per-share has reduced by three cents, which is a negative sign for the company (Siaec.com.sg. 2016). |
|
A. Profitability |
|||
|
2015 |
2014 |
2013 |
|
|
Gross profit ratio |
84.2 |
84.2 |
81.3 |
|
Net profit ratio |
16.32 |
16.32 |
23.53 |
|
Return on capital employed |
19.3 |
19.54 |
21.04 |
|
Return on assets |
15.8 |
15.91 |
16.71 |
|
Return on equity (ROE) |
19.78 |
19.95 |
21.13 |
|
B. Liquidity |
|||
|
|
2015 |
2014 |
2013 |
|
Current ratio |
3.01 |
3.13 |
3.01 |
|
Quick ratio |
2.31 |
0.71 |
2.33 |
|
Stock turnover ratio |
204.60 |
175.13 |
184.21 |
|
Debtors collection period |
35.00 |
44 |
33.00 |
|
Creditor payment periods |
Nil |
171 |
160 |
|
C. Gearing |
|||
|
|
2015 |
2014 |
2013 |
|
Gearing ratio |
0.02 |
0.01 |
Nil |
|
Debt ratio |
0.014 |
0.008 |
Nil |
|
Interest coverage ratio |
Nil |
Nil |
Nil |
|
D. Investment |
|||
|
|
2015 |
2014 |
2013 |
|
Earnings per share |
16 |
16 |
24 |
|
Price earnings (PE) |
16.2 |
21.4 |
20.7 |
|
Dividend per share |
19 |
22 |
22 |
|
Strengths · The main strength of the airline company lies in the servicing in 80 varied airline operating worldwide · It is recognized as the best MRO as per the recommendation given by reeds and Asian Aviation magazine · It is having joint ventures, OEM, and the various airline companies operating in Taiwan, Indonesia, Singapore and many other locations. · The company is further observed to have technical knowhow related to the transfer of the process in the different types of the joint ventures associations such as Rolls-Royce · The company has further approvals from many different countries provide dedicated service to several aircraft registered in Japan and USA. |
Weakness · From the background analysis it has been observed that the majority of the revenues generated from Singapore, and it is highly dependent only on regional incomes. · It has been observed that most of the airlines company in today’s airline business has their own service providers (Siaec.com.sg. 2016). |
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Opportunity · Due to the differentiated services the company has a scope for the increased demand for air travel which needs a dedicated MRO service · the company does an augmented focus on the customers and hence they should be a key differentiator · Does observed that several large companies often take advantage of economies of scale in purchasing (Siaec.com.sg. 2016) |
Threat · The recent downturn in the US and Europe may be a negative factor for the growth of the company · It has been further observed that the engineering company is highly dependent only on the leisure air travel and the different types of size and age of the fleets. · The competition from several other competitors such as Hong Kong aircraft engineering Company limited, Singapore technologies engineering limited and TIMCO Aviation Services possesses high amount of threat to the company. (Store.globaldata.com. 2016). |
Recommendation and conclusion
Based on the several types of financial analysis it can be observed that the operating environment for the related MRO services of the company remains a challenge. The company needs to continue invest in newer competencies to test the capability to meet the various types of changing demands. Moreover, as the airlines decide to replace the previous fleets with the new generation Boeing 787 and Airbus 350 has a high scope of improvement in generation of greater amount of revenue through the maintenance and repair operations. The company further strives to maintain a lower work content and maintain a longer period for checking intervals and management of several costs for improving the financial ratios relating to debt equity ratio, current ratio and return on equity. The joint venture program with Airbus and Boeing will prove to change significant amount of financial position and will ensure a long-term growth of the industry.
List of Reference and Bibliography
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Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage Learning.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.
Healy, P.M. and Palepu, K.G., 2012. Business Analysis Valuation: Using Financial Statements. Cengage Learning.
Kohansal, M.R., Dadrasmoghadam, A., Mahjori Karmozdi, K. and Mohseni, A., 2013. Relationship between financial ratios and stock prices for the food industry firms in Stock Exchange of Iran. World Applied Programming, 3.
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Sg.finance.yahoo.com. (2016). S59.SI Key Statistics | SIA Engineering Stock – Yahoo! Singapore Finance. [online] Available at: https://sg.finance.yahoo.com/q/ks?s=S59.SI [Accessed 26 Sep. 2016].
Sg.finance.yahoo.com. (2016). S59.SI Profile | SIA Engineering Stock – Yahoo! Singapore Finance. [online] Available at: https://sg.finance.yahoo.com/q/pr?s=S59.SI [Accessed 26 Sep. 2016].
Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/10May2016.pdf [Accessed 26 Sep. 2016].
Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/AnnualReport_2014.pdf [Accessed 26 Sep. 2016].
Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/AnnualReport_2013.pdf [Accessed 26 Sep. 2016].
Siaec.com.sg. (2016). [online] Available at: https://www.siaec.com.sg/pdf/AnnualReport_2015.pdf [Accessed 26 Sep. 2016].
Siaec.com.sg. (2016). SIA Engineering Company. [online] Available at: https://www.siaec.com.sg/company_profile.html [Accessed 26 Sep. 2016].
Siaec.com.sg. (2016). SIA Engineering Company. [online] Available at: https://www.siaec.com.sg/history.html [Accessed 26 Sep. 2016].
Siaec.com.sg. (2016). SIA Engineering Company. [online] Available at: https://www.siaec.com.sg/mission_core_values.html [Accessed 26 Sep. 2016].
Store.globaldata.com. (2016). SIA Engineering Company Limited (S59) – Financial and Strategic SWOT Analysis Review | Aerospace and Defense | Company Reports | Global Company Intelligence | GlobalData . [online] Available at: https://store.globaldata.com/company-reports/aerospace-and-defense/sia-engineering-company-limited-s59-financial-and-strategic-swot-analysis-review#.V-lH_ih94dU [Accessed 26 Sep. 2016].
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