SIA Engineering

SIA Engineering: Announced 1Q11 rev which was in line.
Rev at $277.6m, -3.7% yoy and +2.1% qoq, while net profit at $68.1m, -3.8% yoy and +11.8% qoq. Profits from associated Co’s at $37.2m, -5.1% yoy and +11% qoq, while operating Margins improved at 13.4% vs 12.6% yoy.

Lower yoy rev due to benefit of jobs credit and higher non-operating income in 1Q10. Excluding these items, core net profit would have been $0.5m or 0.7% lower. Expenditure, at $242.9m was 3.6% lower due to lower material costs from reduced usage, but short term problems that will continue, include rising operating overheads like manpower and higher subcontracting costs related to Mid-east expansion. Weakening US$ is expected to affect associates/JVs, although the associates/JVs should benefit from increasing demand, as almost all of its rev is in US$.

Going forward, grp tips prevailing global economic uncertainties and oil price volatility to impact aviation industry, but expect demand for MRO services to be sustained. At current price, valuation appears fairly high, trading at annualized 16.7x FY11E P/E vs historical average of 14x, while balance sheet remains strong, with Net Cash of $645m. Kim Eng maintains Sell with $3.66 TP and BNP Maintaints Hold with $4.59TP.