SIA Engineering

SIA Engineering: Reported a relatively weak set of 3QFY14 results as net profit tripped 9.7% to $60.5m on revenue of $283.8m (+2%), taking 9MFY14 net profit to $200.5m (-1.8%). The sluggish bottom-line was weighed by a $11.6m rise in expenditure as operating margins at 8.9% dipped 2.3ppt, led by a rise in staff costs, subcontract and material costs. This was however offset by a 2.5% increase in associate and JV contributions of $41.0m, representing 58.7% of the group’s pre-tax profits. Going forward SIAE guides that the near-term global economic outlook remains uncertain, and rising business costs in particular labour cost, will present challenges to its operating environment and place pressure on MRO yields. The performance of the group is however expected to remain stable. Maybank-KE concludes that despite the uninspiring 3QFY14 performance, the structural drivers of SIAE remains intact, with the group being the best proxy to the unprecedented level of expansion at Changi Airport. Going forward, spin-off of SIAE’s JVs and bumper dividends are potential catalysts for the stock. Fundamentals remain solid, with the group in a net-cash position of $444.3m, representing 40¢ per share. At current price, SIAE trades at 17.8x ex-cash forward P/E. Latest broker ratings as follows: Maybank-KE maintains Buy with TP $6.34 OCBC maintains Hold with TP $4.77