OCBC Investment Research has downgraded SIA Engineering Company to"sell" and lowered its fair value estimate from S$2.86 to S$2.41, citing the effect that the novel coronavirus outbreak is likely to have on near-term demand for air travel.
As at 10.55am, shares in the company, which provides aircraft maintenance, repair and overhaul services, were trading S$0.01 or 0.4 per cent lower at S$2.58, after some 308,000 shares changed hands. During the Sars epidemic in 2003, visitor arrivals to Singapore fell 19 per cent year on year to 6.1 million, while the number of incoming flights declined 12 per cent y-o-y.
As a result of the weak travel demand then, airlines scaled back flights and grounded aircraft which in turn weighed heavily on SIA Engineering's airframe business, which saw a 21 per cent y-o-y drop in FY2003 revenue, as well as the line maintenance and technical ground handling business, which posted a 25 per cent y-o-y decline in FY2003 revenue, the OCBC Investment Research team wrote in a Tuesday report.
While travel demand recovered to pre-Sars level in the fourth quarter of 2003, there was a lag of three to six months before the tailwinds of recovery filtered down to SIA Engineering's airframe maintenance and component overhaul, the research house added.