SIA Engineering - Maybank Kim Eng 2016-02-02: Plenty of one-off items

SIA Engineering - Maybank Kim Eng 2016-02-02: Plenty of one-off items SIA ENGINEERING CO LTD S59.SI 

SIA Engineering (SIE SP) Plenty of one-off items 

Maintain HOLD; Good dividend play 

  • 3Q16 offered little surprise. We stay neutral as there are still no clear signs of a rebound in workload and the stock’s valuations appear fair. 
  • SIAEC is a good dividend play as it could distribute its surplus cash when the ongoing restructuring is completed. 
  • Our forecast DPS (special: 9.0 SGD cts; core: 14.5 SGD cts) translates to a decent yield of 6.9%. 
  • TP remains unchanged at SGD3.61, based on 20x FY3/17 EPS. 
  • Maintain HOLD. 

3Q16 broadly inline; Three one-off items 

  • 3QFY3/16 net income of SGD49.4m was broadly inline. 
  • Headline profits were distorted by three one-off items: 
    1. SGD4.3m loss on liquidation of an associate, 
    2. SGD2.5m provision for impairment in another associate; and 
    3. restructuring gains at its associates and JVs that were not quantified. 
  • Excluding exceptional items quantified, 9M16 core net profit was 79.4% of our full-year estimate. 

Improved core EBIT; Management stays cautious 

  • On a positive note, its core EBIT of SGD29m was the best in seven quarters due to higher fleet management & line maintenance revenue and good cost control. However, management remains pessimistic about its outlook, citing challenging conditions for the MRO industry and lower workload for its engine shops. 

Special DPS on completion of restructuring? 

  • The restructuring of its joint ventures with Rolls-Royce should be completed by 4Q16 and the company will gain cash proceeds of SGD201.9m (note). 
  • Over the quarter, the company utilised SGD4.3m to purchase 1.2m worth of shares in the open market following the announcement. 
  • We see more room for it to return this surplus cash to shareholders and built in special DPS of 9.0 SGD cts for the year. 
  • Added to our forecast core DPS of 14.5 SGD cts, the stock offers a decent forward yield of 6.9%.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-02
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.61 Same 3.61