SIA Engineering/ ST Engineering

SIA Engineering/ ST Engineering: Hong Kong Aircraft Engineering Company (HAECO) announced an acquisition of TIMCO for US$388.8m (c.HK$3,025m). Based in the US, privately-held TIMCO is one of the largest providers of maintenance, repair and overhaul (MRO) services in the world with over 2,700 employees. Based on TIMCO's HK$122m income generated for FYJun13, the acquisition price translates into a 24.8x P/E valuation. By airframe man-hours clocked in 2012, Maybank KE notes that this acquisition implies a merger of the second and seventh largest global players, bringing the combined airframe maintenance output for these two entities to 10.6m man-hours, allowing them to close in on global leader ST Engineering's 11.5m man-hours for the year. While all MROs are not directly comparable, Maybank KE believes that the acquisition valuations of TIMCO will provide a reference multiple for the publicly listed MROs and believe that the sector should trade up to comparable valuations. The Singapore-based MRO players, SIA Engineering and ST Engineering, currently trade at a discount to TIMCO’s acquisition price of 21.4% and 12.7% respectively, for the similar periods. Maybank KE reiterate their positive views on the Singapore MROs and believe that they are good proxies to the structural growth in global air traffic. House has a Buy rating on SIA Engineering with TP of $6.19, as well as a Buy rating on ST Engineering with TP of $4.80.