SIE

SIE: 1QFY15 results missed. Net profit fell 22.5% y/y to $53.5 while revenue inched lower by 1.6% to $294.1 as higher fleet management revenue was offset by a reduction in airframe and component overhaul revenue. Bottom line was weighed by increased operating expenses and a 28.8% drop from share of associate and JV’s profits to $30.6m. Management turned bearish on its outlook, citing challenges from decline in heavy checks, reduction in engine shop visits and rising business costs. 3 headwinds weighing FY15e earnings are: • New hangar facilities in the Philippines (Hangar 2: Apr 2013, Hangar 3: under construction) are coming on-stream at a time when heavy maintenance workload is slowing down. • Persistent weakness in shop visits for its Rolls-Royce engine shops (FY3/14: 41% of net income). • The scale-back in capacity expansion by regional As such, Maybank-KE downgrades to Sell with TP cut to $4.20 from ($5.75).