Tuesday, November 3, 2015

SIA Engineering

SIA Engineering: 2QFY16 results in line, net income climbed 5.7% y/y to $44.5m, while revenue fell 6.7% to $285.2m.

Top line weakness was due to lower airframe and component overhaul and fleet revenue, offset by higher line maintenance revenue.

Operating profit improved 69.8% to $27m, mainly driven by lower subcontract, staff and material costs. Operating margin improved by 4.6ppt to 10.1%.

Nevertheless, associates and JV’s contribution fell 35.7% to $18.7m. Contributions from engine repair and overhaul centres fell 41.5% to $8.3m.

On outlook, Maybank-KE sees signs of bottoming for SIAEC. The recent rebound in flight traffic at Changi Airport should benefit SIAEC’s line maintenance revenue Next year, airlines may increase capacity and slow their fleet retirement in response to lower oil prices, in turn driving a cyclical pick-up in maintenance workload for the year head.

Nevertheless, valuations remain lofty, trading at about 25x FY16e P/E.

Latest broker ratings:
Maybank-KE maintains Hold, increases TP to $3.75 from $3.30
CIMB maintains Hold with TP of $3.80
JP Morgan maintains Overweight with TP of $5.00

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