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SIA Engineering trades at 9-year low price and 10-year low valuations (26 Dec 18)

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SIA Engineering (“SIE”) catches my attention this week because

1) Share price has fallen to the lows last seen in May 2009 – 9 +year low with negative news, more or less well known. It last trades at $2.20 on 26 Dec 2018. Based on Maybank’s report out this month, SIE management has flagged out challenges in their industry approximately two years ago –> on lower maintenance frequency required by newer aircraft and fleet growth at low cost carriers (“LCC”) requiring SIE to think of new solutions to reduce aircraft downtime at hangars;

2) At $2.20, RSI last trades at 11.9. Since 2001, there are only 3 occasions where RSI is lower than now with the lowest RSI at 7.2;

3) Valuations are at 10 year low. With reference to Chart 1 below, SIE trades at 13.1x PE and 1.67x P/BV vis-a-vis 10 year average PE and P/BV of 17.9x and 3.2x respectively;

Chart 1: SIE trading at 10-year low valuations

SIA Engineering 10Y PEBD 26 Dec 18

Source: Bloomberg 26 Dec 18

4) Based on the latest annual report, SIA owns approximately 77.8% of SIE. There has been some speculation, albeit for years, that there may be some privatisation angle for SIE. It is noteworthy that Swire Pacific has privatised HAECO in June 2018 at 2.2x P/BV. At 2.2x P/BV, SIE price should be around $2.92 (SIE’s NAV / share is around $1.33);

5) Average analyst target is around $2.90 representing a potential capital upside of around 31.7%. Estimated dividend yield is around 5.7%. Hence total potential return is around 37.5%. It is also noteworthy that the lowest analyst target price is $2.64 which still represents a potential capital upside of around 20.0%;

Figure 1: Average analyst target price

SIA Engineering analyst target 26 Dec 18

Source: Bloomberg 26 Dec 18

Near term supports: $2.20 / 2.15 /2.13

Near term resistances: $2.29 / 2.33 / 2.39

 

*Risks*

1) I am vested in SIE but im only aiming for a few bids of profit, if any. I may cut loss if the trade does not go according to plan;

2) In terms of near term catalysts, most analysts believe there are mostly no near term catalysts. Most of them cite low valuations and attractive dividend yields as the main attractive points, and perhaps (this is a long shot – potential privatisation play);

3) Although RSI is already at an extremely oversold level of 11.9, this does not mean that it wont drop further. All time low RSI is around 7.2;

4) Analyst target prices are subject to change;

5) I am not familiar in SIE. Please refer to the analyst reports for the fundamental info.

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