SIA Engineering queried after share price jumps as analysts float possibility of privatisation

As of 10.07am on Friday (July 5), SIA Engineering shares were trading at $2.89, up 17 cents or 6.3 per cent.
As of 10.07am on Friday (July 5), SIA Engineering shares were trading at $2.89, up 17 cents or 6.3 per cent.PHOTO: ST FILE

SINGAPORE - SIA Engineering said it is not aware of any information which might explain the jump in its share price over Thursday and Friday, in response to queries from the Singapore Exchange (SGX) for "unusual price and volume movements".

The SGX query came just half an hour after the market opened on Friday (July 5). Since then, SIA Engineering shares rose as high as $2.955, up 23.5 cents or 8.6 per cent as at 11.24am. On Thursday, the counter closed 8.4 per cent or 21 cents higher at $2.72 on high volume.

As at 12.01pm, the counter lost some of its morning gains to trade at $2.81, up nine cents or 3.3 per cent.

The spike in SIA Engineering shares may indicate the possibility of privatisation by parent company Singapore Airlines (SIA), DBS analysts said on Friday morning in a research note before the SGX query was issued.

In response to queries from The Business Times, SIA that it does not comment on market speculation, when asked about the DBS research report. Its own shares saw some upside in the early morning trading session, rising as high as 1.2 per cent or 11 cents to $9.56 as at 11.38am.

DBS analysts Paul Yong and Suvro Sarkar had called the stock's volatility "uncharacteristically high", which they believe could have been fuelled by renewed talk of privatisation by SIA.

"SIA Engineering's stock price has performed poorly of late, and could thus provide a value-for-money privatisation target for SIA," they said.

For the past 12 months, SIA Engineering's share price has trended down 20 per cent to $2.51 prior to the sharp rise, on "uninspiring" quarterly results and lower dividend expectations, said the analysts.

With SIA's close to 78 per cent stake in SIA Engineering's maintenance, repair and operations (MRO) unit and the stock's low liquidity, the rationale for privatisation would be "pretty strong", DBS said.

In addition, SIA being a cash rich company means it would not have to leverage on the equity capital markets for financing, along with not having any significant acquisitions under its belt.