SIA Engine

SIA Engine: UOB Kay Hian maintains Buy with $4.55 TP. House remain positive on stock as mgt highlighted new growth initiatives and SIAEC’s existing businesses remain stable in the foreseeable future. The increased dividend payout should be cheered by investors. Mgt highlighted that the 1.5% yoy net profit decline was largely due to $12.3m in FX difference. The impact was felt most in the Repair and Overhaul segment, which saw profit contribution declining 28% yoy. Excluding the foreign exchange difference, net profit would have increased 8% yoy. Associate income was weak but mgt confident of resolving issues. Associate income fell 31% yoy in 2QFY12 and 28% in 1QFY12. Mgt acknowledged certain operational issues from the associates but remained confident of turning the situation around in due time. However, collectively, associate and jv income fell just 4.2% yoy in 2Q12. Dividends from associate and jv’s however rose 16% yoy. CEO commented that orderbooks are full and grp could look to add a seventh hangar in Singapore if required. Capex requirements for a new hangar were estimated at $80m. Add that SIA’s A380 fleet, which commenced flights in 2007, is maturing and SIAEC would see more work from this aircraft type. Grp also highlighted that the increase in interim dividend from 6c to 7c was to achieve a better balance between the interim and final div As such, house believe SIAEC will maintain its final dividend at 15 cents. At this level, payout ratio will also remain flat yoy at 86%.