Asian MRO

Asian MRO: MRO is expected to rise by 75%, to be the world’s largest MRO market by 2023, according to TeamSAI. Maybank KE guides HAECO and SIA Engineering (SIAEC) as better positioned to gain from this upcycle due to following themes, relative to ST Engineering (STE). 3 themes that will shape the performance of Asian MROs are: 1) Growing presence of OEMs in the aftermarket – implying MRO JVs with OEM will outperform 2) Rising demand for engine maintenance – the largest growth opportunity 3) Expanding airport capacity – will benefit dominant line maintenance players. Maybank KE underscores that at 18x forward P/E, MROs have not factored in the upcoming MRO upcycle. The house projects an EPS CAGR of 10% over next 3 years, which supports a 21x P/E valuation target for the sector. The house has initiated coverage on HAECO, citing the Hong Kong stock has the best earnings outlook with cheapest valuation to boot. EPS growth is expected to accelerate on: 1) strong momentum at its Rolls-Royce engine units, HAESL and SAESL 2) turnaround at its GE90 engine shop, TEXL 3) earnings-accretive acquisition of TIMCO Maybank KE ranks these Asian MROs by preference: 1) HAECO (Initiate at Buy, TP: HK$128) 2) SIAEC (Maintains Buy, TP: $5.88) 3) STE (Maintains Hold, TP: $4.01)