SIA Engineering - CIMB Research 2017-02-03: Boosted by stronger associates and JVs

SIA Engineering - CIMB Research 2017-02-03: Boosted by stronger associates and JVs SIA ENGINEERING CO LTD S59.SI

SIA Engineering - Boosted by stronger associates and JVs

  • SIE's 3QFY17 net profit of S$52.6m was slightly above our expectation and consensus, forming 30% of forecasts. 9M17 core net profit was in line at 75% of FY17F.
  • Share of associates and JVs surprised on the upside as they contributed 60% of SIE’s net profit.
  • We still expect SIE to declare special dividend in 4Q17 from the gain of HAESL divestment. Net cash stood at S$531m.
  • We maintain our Hold call with an unchanged DCF-based TP of S$3.77. Re-rating catalysts could come from stronger-than-expected MRO volume.

Stable revenue 

  • SIE’s 3QFY17 revenue of S$272m (+3% qoq, -1% yoy) was in line with our expectations. 
  • Lower fleet management (loss of Tiger Airways contract), airframe and component maintenance, repair and overhaul (MRO) were mitigated by higher line maintenance revenue. 
  • Changi’s flights handled in 3Q17 rose 2.1% qoq and 3.8% yoy to c.1,026 flights handled a day.

Cost helped by stronger US$ 

  • SIE recorded S$4.8m of FX gains, bringing 3Q17 EBITDA margin slightly higher to 15% (1H17:14.2%). 
  • Staff costs of S$125m formed 46% of revenue, slightly higher than the average of 42% in the past four quarters.

Associates and JVs surprised 

  • Share of profit from associates went up 41% qoq and 10% yoy to S$17.3m. This could be due to more Pratt & Whitney engine visits by Pratt & Whitney. 
  • Share of profit from JVs also jumped by 192% qoq (-18% yoy) to S$14.3m, which could be due to resolution of supply chain issues with Rolls Royce which affected SAESL’s earnings in 2Q17.

Special dividend to sustain dividend yield of 5% 

  • The balance sheet is strong with net cash at S$530.5m. We remain hopeful of a special dividend in 4Q17. 
  • In 2Q17, management guided for 80-90% dividend payout on recurring earnings which translates into FY17 DPS of 12-13.5 Scts (interim DPS was 4 Scts). Assuming SIE distributes 50% of the HAESL c.S$160m gain, DPS could be increased by another 7 Scts, bringing total DPS to 19-20.5 Scts (5% yield). Capex is guided to be in the S$40m-70m p.a. range.

Maintain Hold 

  • Our EPS forecasts and DCF-based target price of S$3.77 (WACC: 6.4%) are intact. 
  • SIE is trading at 22x forward P/E, with flat earnings growth in FY18. We would be buyers if there was a visible recovery in MRO volume. 
  • Risk to call is longer-than-expected interval for aircraft MRO, which would drag revenue in FY18-19.

LIM Siew Khee CIMB Research | 2017-02-03
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 3.770 Same 3.770