SIA Engineering

SIA Engineering: In yesterday’s MKE hosted NDR, management acknowledged investors’ concern on labour cost pressures in Singapore, but highlighted that its operational efficiency would compensate the disadvantage of operating in a country with relatively high labour cost base. On potential threats from new entrants to Changi Airport’s Line maintenance market, management thinks that the threat is fairly low and believes that access to hangar facilities remains a competitive advantage for the group. IN addition, SAESL, SIE’s JV with Rolls-Royce, also expects to execute heavy shop visits for the Trent 1000 series of engine in 2 years time. Broadly, MKE remains positive on SIE and reiterates view that this counter provides the best proxy to the structural air traffic growth in the region, and guides management’s cautious undertone as an attempt to management market expectations. MKE expects 5% yield over forecast years (i.e. till 2017e), and maintains Buy with TP of $5.75