SIA Engineering Company Ltd - Phillip Securities 2016-02-02: Rationalisation of core businesses

SIA Engineering Company Ltd - Phillip Securities 2016-02-02: Rationalisation of core businesses SIA ENGINEERING CO LTD S59.SI 

SIA Engineering Company Ltd - Rationalisation of core businesses 

  • 9M revenue of S$818.5mn forms 73% of consensus full year forecast of S$1,114mn. 
  • 9M PATMI of S$135.2mn forms 78% of consensus full year forecast of S$173.8mn recurring adj. PATMI. 
  • Several one-offs in the results, due to rationalisation of core businesses. 

Results


 Line Maintenance segment stabilised Group revenue. 

  • During the previous quarter's results briefing, Management briefed on the expected shift in revenue mix towards line maintenance. 
  • We see that happening in this quarter. This was likely underpinned by the 3.3% y-o-y growth in commercial aircraft movement at Changi Airport in 4QCY15. 

 Closure of JV PWA International Limited – 

  • streamlining of operations. The Group recently announced on 22 January 2016 the voluntary closure of JV PWA International Limited (PWAI). PWAI is a JV based in Dublin, Ireland, between SIA Engineering Company (SIAEC) and Pratt & Whitney Ireland Holdings Limited. SIAEC has a 49% stake in the JV which provides repair and overhaul service of cases for PW4000 engines. We believe that the S$2.5mn provision made in 3QFY16 is in relation to this JV. 


How do we view this? 


 Rationalisation of core businesses sharpens the Group's competitiveness. 

  • The nearterm outlook remains challenging, undermined by improved aircraft and engine reliability. This reduces engine shop visits and heavy checks, resulting in declining revenue and contributions from associated and JV companies. 
  • However, the rationalisation of the core businesses should put the Group in good stead for the future. Balance sheet remains healthy in a net-cash position of almost S$300mn. 


Investment Actions 

  • Near-term weakness and absence of catalyst leads us to maintain our Neutral rating on SIAEC, with unchanged target price of S$3.35.



Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-02-02
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.35 Same 3.35


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