SIA Engineering

SIA Engineering: Reported results which were in-line with expectations but may fall after fiscal 2Q results show sequential decline in earnings, mgmt guides for moderation in 2H. Rev at $277.1m +12%YoY and -4%QoQ, while Net Profit at $66.5m, +8.8%YoY and -6.1%QoQ. Strong rev attributed to higher airframe and component overhaul work, fleet management programme rev and material usage, while operating margins improved to 12.5% vs 11%YoY…

Result brings 1H10 Rev to $565.4m, +14.8%YoY and Net Profit at $137.3m,+29.3%YoY. We note that grp has a net cash position of $406m, with no borrowings, translating to cash of 37.3c/share. Annualizing EPS without cash component would value grp’s business at 16x FY10E P/E, vs historical high of 20x P/E and average of 13.8x. Grp has declared an interim dividend of 6c/share for 1H10....

UOB notes stock has outperformed STI by 23% YTD, says negative free cash flow (operating cash flow down 84.5% on year), lower guidance could impact share price; adds if firm secures 3rd ground handling license at Changi, stock could re-rate, "though earnings are unlikely to be accrued swiftly." Downgrades stock to Sell, keeps S$3.99 target price.