SIA Engine

SIA Engine: Reported 1Q14 results which were largely in-line, albeit at the lower end of estimates. Revenue at $289.4m (-4% y/y, +2% q/q) while net profit at $69m (-2% y/y, +5% q/q), with bottom-line propelled largely by contributions from associates and JVs, which formed 57% of earnings contribution before tax. The lackluster top-line performance primarily due to lower material and fleet management revenue, which also saw expenditure fell by 1.7%, mainly from decreases in subcontract and material costs. Operating margins at 9.6% was down 1.8 ppt largely due to higher staff costs which formed 49% of total operating expenditure. The bottom-line was however supported by strong contributions from associates and JV, which typically consists of the group’s engine maintenance segment, which registered a 14.0% increase in contributions to $45.6m. Going forward SIA Engine note that with uncertainties facing the global economy, the operating environment continues to be challenging, although the overall performance of the group is expected to remain stable in the near term. Add that existing collaborations and association with original equipment manufacturers place the Group in an advantageous position to seize growth opportunities in the region. We note that the group’s fundamentals remains solid with a net cash position of $619.3m or 55.7c per share, with Maybank-KE reiterating that the market has not fully appreciated the hidden value in its key JVs with Rolls Royce, which should benefit from the influx of Trent engines into the market. Valuations remain undemanding based on house Sum-of-the-parts estimates. Latest broker ratings as follows: Maybank-KE maintains Buy with $6.19 TP CIMB maintains Neutral with $5.00 TP UOB Kay Hian downgrades to Sell with $4.65 TP