SIA Engineering - OCBC Investment 2017-05-16: Core FY17 Above Expectations

SIA Engineering - OCBC Investment 2017-05-16: Core FY17 Above Expectations SIA ENGINEERING CO LTD S59.SI

SIA Engineering - Core FY17 Above Expectations

  • Growth at associate likely nonrecurring.
  • Special dividend of S$0.05/share.
  • Maintain HOLD on higher FV.

Core FY17 PATMI formed 113% of our FY17 forecast 

  • SIA Engineering Company Ltd’s (SIAEC) FY17 core PATMI was above our expectations as it fell 13.4% to S$165.0m. Recall that SIAEC recorded S$141.6m in divestment gain and S$36.4m in special dividend from HAESL in FY17. 
  • Operating expenses increased 2.4% to S$1032.1m but was largely due to one-off provision of staff costs arising from the divestment as well. 
  • FY17 revenue fell 0.8% to S$1104.1m, mitigated by higher line maintenance (LM) revenue (+11.5%).
  • Growth in LM was largely due to more flights handled at Changi Airport and reorganization of business, where some of the aircraft & component overhaul services (ACS) works and headcount were transferred to LM given some of these maintenance works are now being performed on the apron instead of in the hangar.
  • FY17 share of profits of associated and JV companies grew 2.4% to S$96.5m, mainly driven by higher work content at its associate due to extension of use for end-of-cycle aircraft fleet (e.g. B747), which we believe to be nonrecurring.
  • SIAEC is recommending a special dividend of S$0.05/share in addition to the S$0.09/share final dividend, bringing the total dividend payment for FY17 to S$0.18 (FY16: S$0.14).

Line maintenance the longer-term bright spot 

  • Over the near-term, ACS will likely remain muted given the lower work content required and longer maintenance intervals on new aircraft/engine models. However, we also expect LM revenue to grow steadily as the traditional heavier checks on new-generation aircraft are now broken down into multiple phases on the apron itself to reduce aircraft ground time in the hangars. 
  • Management has also highlighted they plan to increase their LM presence in more airports over time, including through JVs and partnerships. Over the longer-term, we believe SIAEC will benefit from the growth in aircraft fleet worldwide.

Decent FY18 dividend yield of 3.3% 

  • We keep our forecasts unchanged and switch from DDM-based to DCF-based valuation to reflect its solid balance sheet, and long-term business stability as it adapts to the new aircraft maintenance trend. 
  • Consequently, our FV increases from S$3.58 to S$3.75, maintain HOLD.

Eugene Chua OCBC Investment | 2017-05-16
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 3.75 Up 3.580