SIA Engineering Company Ltd - Phillip Securities 2016-05-11: Softness to persist into FY17

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SIA ENGINEERING CO LTD S59.SI 

SIA Engineering Company Ltd - Softness to persist into FY17

• FY16 revenue of S$1.11bn in line with consensus expectations of S$1.11bn, and in line with our expectations of S$1.09bn
• FY16 PATMI of S$176.6mn in line with consensus expectations of S$180.5mn, and in line with our expectations of S$172.5mn
• 8.0 cents final dividend proposed, lower than 8.5 cents in FY15

 Investing for the future: Strategic Partnerships

• The Group had inked a few partnerships during the year. These include 
  1. the JV with Boeing, Boeing Asia Pacific Aviation Services (BAPAS), which involves Fleet Management Services for Boeing aircraft, 
  2. Airframe Maintenance JV with Airbus, 
  3. appointment as Rolls-Royce on-wing service provider for the Trent-family of engines, and 
  4. appointment as on-site support provider for CFM LEAP-1A and 1B engines in Asia Pacific. 
• Management guided that both JVs will not be accretive in the near term, and expects a gestation period of about three years for the partnerships to bear fruit.

 Airframe Maintenance: Redeployment of staff and facility for Airbus JV

• There will be a transfer of two engineer/technician lines, Hangar 6 and one bay in Hangar 1 to the Airframe Maintenance JV with Airbus.

 Engine Overhaul: More engine works to be on-wing

• Overall, this will have the effect of more revenue being recognised for the Line Maintenance segment, and lower profits from the SAESL JV. 
• Management explained that there are in fact more engines going through the shop, but work content is lower. 
• Engine shop forward visibility comes in FY18, driven by the Trent 800 (B777) and 700 (A330) engines. 
• Eagle Services (associated company), is expected to taper off as the Pratt & Whitney PW4000 engine gradually gets phased out of service.

Maintained "Neutral" rating with higher target price of S$3.51 (previous: S$3.35)

• We are forecasting FY17 to remain flat, as engine shop visits are expected to pick up only in FY18, and taking into account the three-year gestation period for the strategic partnership JVs to bear fruit. 
• Management guided that dividend payout is likely to remain about the same (slightly below 90%). 
• SIAEC remains a strong cash-generating business in a net-cash position.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-05-11

Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.51 Up 3.35