Divestment Of SIA Eng

On Tuesday evening, I met up with a couple of my ex-colleagues for dinner. Not surprisingly, I arrived early and they were late. Instead of surfing Facebook mindlessly during the wait, I decided to take a look at SIA Eng’s latest quarterly results which was released on the day itself.

To be honest, I don’t have a habit of scrutinizing all my investment’s quarterly results immediately after they are released. I probably would only take a look if there’s a big movement in the share price the next day. Otherwise, I would presume everything’s fine. After all, Warren Buffett did mention that one should make investments with a mindset that everything would be fine even if the stock market was to close for ten years.

I was actually alerted to the results from a fellow financial blogger who is fast becoming a friend (if not a friend already). When he told me about the “poor” results, naive me remarked that it could be an opportunity to buy more of the stock.

Lazy me making a foolish statement. (But the saving grace was that maybe I was just trying to comfort him? LOL) Because once I saw the results, my immediate reaction was to sell, which I did.

As this is my first divestment since I started the blog, I thought it would be beneficial even for me to write down my thoughts.

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General view on poor results

The problem with most businesses is that things are rarely rosy all the time during a decade. When the company reports a poor set of results, the investor has to ascertain if this is a temporary situation, or the first signs of a permanent decline.

This has been pretty common in the past half a year with some of the stocks that I hold or are monitoring. Besides SIA Engg, there’s Challenger, Super Group, OSIM, Genting and even Semb Corp. Of course, one can’t be 100% sure, but one needs to assign probabilities to each outcome in order to make a decision to buy, sell or do nothing. Yes, doing nothing can be a very sound decision too.

SIA Eng’s results

With SIA Eng, the decision was pretty obvious for me. Most of the key metrics like profits and margins were down by 30-40% for both the quarter and the past half a year and it’s highly likely that the coming set of annual results could be the worst in a decade.

I might not be very familiar with the aviation industry but I do understand that one of SIA Eng’s core business is in servicing aircraft engines. It’s very much a downstream business and my investment thesis relies heavily on the implicit assumption that the aircrafts they service “need” frequent and constant servicing.

And so when you see statements like “Engine improvement modifications as well as an extension of the “on-wing” life of certain models and the accelerated retirement of the older engines resulted in a reduction of engine shop visits. ” in the announcements, it’s nothing short of ominous.

With what I felt was a change in the fundamentals, I proceeded to sell my 2 lots of SIA Eng @$4.50 on Wednesday morning.

This is definitely not a call for you to sell your stake too if you also own the shares. I also gain nothing from it since I am not shorting it. In fact, there’s always a buyer and seller in every trade and I have had my fair share of regrets with poor decisions on my part. So yes, I could be wrong.

Reflections

This stock is definitely not a sob story since I can see plenty of silver linings for the sale.

Firstly, $4.50 was a great price in my opinion. It’s just a 30 cents fall from Tuesday’s last traded price which represents less than a 5% drop. My take for this is that it helped that SIA Eng was a STI component stock. There’s probably enough demand from STI ETFs or Blue Chip Regular Savings Plans (RSPs) like POSB Invest-Saver.

Secondly, it’s a hugely profitable trade. I have held this share for 3 years and including the dividends, the annualised return is about 16%, which is really not too shabby. 🙂

Thirdly, I think subconsciously, I have alot of hesitations towards selling in recent years. I think it really didn’t help that I sold 15 lots of Silverlake Axis @$0.345 (price has quadrupled) 2.5 years ago. Guess this sale could somehow help to break that mental barrier towards selling.

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