SIA Engineering Company Ltd (SGX: S59), or SIAEC for short, specialises in aircraft maintenance, repair, and overhaul (MRO) services to over 80 international airlines around the world. It’s also a one of the subsidiaries of Singapore Airlines Ltd. (SGX: C6L). At its current price of S$2.51 (at the time of writing), SIA Engineering’ shares are trading at 22% below its 52-week high price of S$3.22.
This raises a question: Is SIA Engineering cheap now? This question is important because if the firm’s shares are cheap, it might be a good opportunity for investors to dig further into the fundamentals of the business. Unfortunately, there is no easy answer. However, we can still get some insight by comparing SIA Engineering’s current valuations with the market’s valuation. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
SIA Engineering currently has a PB ratio of 1.8, which is higher than that of the SPDR STI ETF’s PB ratio of 1.0. Similarly, its PE ratio is higher than that of the SPDR STI ETF’s (17.6 vs 11.7). Still, income investors might be enticed by the company’s dividend yield of 4.4%, which is higher than the market’s yield of 3.5%. The higher a stock’s yield is, the lower its valuation.
In sum, we can argue that SIA Engineering is priced at a premium to the market given its high PB ratio and high PE ratio.
Yet, income investors might find its current dividend yield of 4.4% to be attractive. For this group of investors, they will need to assess the sustainability of SIA Engineering’s dividend for the foreseeable future before buying its stocks.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.
Motley Fool Singapore 2019