SIA Engineering (SIE SP) - Maybank Kim Eng 2018-02-05: Decent Quarter But Outlook Remains Challenging

SIA Engineering (SIE SP) - Maybank Kim Eng 2018-02-05: Decent Quarter But Outlook Remains Challenging SIA ENGINEERING CO LTD S59.SI

SIA Engineering (SIE SP) - Decent Quarter But Outlook Remains Challenging

Maintain HOLD: 3Q18 profit driven by associates/JVs 

  • SIA Engineering's 3Q18 profit of SGD54.8m, up c4% y-o-y, was in line with our expectations. Revenues slid marginally and the bottom-line growth was driven principally by associate & JV contributions, up 29% y-o-y. 
  • The anticipated double-digit growth in core operations is still 1-2 years away we believe. 
  • Maintain HOLD with SGD3.50 price target based on 5 year forward PER mean of 21x FY3/19E EPS (unchanged).

Core operations remain sluggish; guidance muted 

  • Revenues slid marginally by 0.5% in 3Q, while for 9M18 it was up just 1.2%. Line maintenance revenues posted modest growth for the quarter, which was offset by the decline in fleet management revenues (from loss of a major customer in the prior quarter). 
  • Meanwhile, cost pressures exist as evidenced by the 2.1% and 2.9% y-o-y increases in operating costs for the 3Q18 and 9M19 periods, respectively. 
  • While 9M18 accounted for 79% of our FY18 forecast, our est.’s are unchanged as 3Q has seasonally been the strongest quarter in recent years (at c27-31% of full year profit). 
  • Management cite the operating environment to be challenging with intense competition and pricing pressure in the region, along with lighter maintenance requirements and longer maintenance cycles arising from technological advancements of new generation aircraft.

Associates & JVs delivered 

  • Associate & JV profit grew a solid 29.1% y-o-y for the quarter with almost all of the growth coming from contributions from repair and overhaul (R&O) while the line maintenance contributions remained flat y-o-y. 
  • We expect the recent expansion in Japan (Osaka airport) should start contributing to growth over the coming 2-3 quarters.

New partnerships positive but will take time 

  • We remain positive on the long term growth potential of a number of the new partnerships/JVs announced earlier this year, more specifically ones with Air India for line maintenance, with MOOG for maintenance of flight control systems and with General Electric for engine overhaul. 
  • That said, in the near term, these ventures will entail start-up costs and any material contributions will likely take 6-8 quarters.

Swing Factors


  • Bigger-than-expected workload for Rolls-Royce Trent engines.
  • Acceleration in aircraft deployment.
  • Increased use of older aircraft on improving economics from lower oil prices.


  • Rising labour costs.
  • Fleet renewal by airline customers that could reduce maintenance work.
  • Poorly-executed acquisitions.

Neel Sinha Maybank Kim Eng | 2018-02-05
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.500 Same 3.500