SIA ENGINEERING CO LTD
S59.SI
SIA Engineering - Possibility of special dividends deferred
- 4QFY16 profits of S$41m flat y-o-y; in line
- Heavy maintenance and engine MRO yet to pick up
- Final dividend of 8Scts declared, bringing full-year payout to 14Scts – slightly below expectations
Downgrade to HOLD on valuation with TP of S$3.84.
- SIE’s share price has rallied ~10% since our upgrade in February and the stock now offers limited upside to our target price.
- Final dividend announced of 8Scts (bringing the full year payout to 14Scts) was disappointing, on the absence of a special payout from the sale of SIE’s 10% stake in HAECO; finalization of the sale has been pushed back to mid-2016.
- Valuations are now looking pricey with SIE trading at 23x forward P/E versus peers’ 18-19x.
- Fundamentals remain unchanged, with the heavy maintenance and engine JVs facing strong headwinds from lower work content and longer maintenance intervals.
4QFY16 results in line.
- 4QFY16 net profit of S$41.4m was flat y- o-y, while core net profit for the year was S$181m, also in line with last year’s numbers.
- Falling revenues at heavy maintenance shops and lower profits from JVs/associates (mainly engine shops) were offset by steady growth in line maintenance and fleet management as well as operational cost savings for the full year.
Lacklustre growth in FY17/18; long-term initiatives in the works.
- We expect topline growth of about 1-3% p.a. in FY17/18; we think there could be a slight cyclical upswing in MRO work in 2018/19 as the larger checks come due. However the secular trend of lower overall work content and longer check intervals remains an issue.
- JV initiatives with OEMs are a net positive, but any accretive impact is at least a few years away.
- Meanwhile, recent initiatives such as the S$50m investment into technologies such as big data for aircraft will help the group maintain its competitiveness in the long-term.
Valuation:
- Our TP of S$3.84 is based on a blended valuation framework (PE, dividend yield and DCF), and includes a 10% M&A premium.
Key Risks to Our View:
- We cannot rule out a lengthy period of weak MRO demand amid structural changes in the industry.
- Increasing competition could also lead to renewed stress on the margins front.
- Upside risk exists in the form of potential privatisation/M&A
Suvro SARKAR
DBS Vickers
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2016-05-12
DBS Vickers
SGX Stock
Analyst Report
3.84
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3.84