SIA Engineering - OCBC Investment 2018-05-16: Decent FY18 Results

SIA ENGINEERING CO LTD SGX: S59

SIA Engineering - Decent FY18 Results

SIA Engineering Company Ltd’s (SIAEC) FY18 revenue fell 0.8% to S$1094.9m largely due to the weaker fleet management (-15%) segment but offset by growth at the Airframe Overhaul and Line Maintenance (+1%) as well as Engine and Component (+18%) segments.

Operating expenses declined 1.3% to S$1018.5m largely due to lower staff (absence of S$21.3m provision in FY18) and subcontract costs but partly offset by exchange loss. However, share of profits of associates and JVs grew 13.8% to S$109.8m mainly driven by higher contributions from the engine and component centres.
Consequently, stripping out one-off items including the S$14.3m gain recognized in 4QFY18 on the sale of the group’s shares in an associated company, Asian Compressor Technology Services Co Ltd, as well as exceptional items in FY17, FY18 core PATMI came in flat at S$171.5m, and formed 102% of our FY18 estimate.
SIAEC has recommended a 9 S-cents (FY17 final dividend: 9 S-cents) final dividend for FY18.

Over the near-term, we expect the core business to stay muted as the industry shifts towards an increase in demand for lower margin Line Maintenance on the new aircraft/engine models. However, we expect SIAEC to continue to benefit from more Trent 1000 (used on B787) engine checks due to problems with the engine blades, which require workshop visits for the affected engines.
And over the longer-term, we believe SIAEC is well positioned for longer-term growth through its partnerships with both aircraft and engine OEMs. SIAEC has formed partnerships with both major aircraft manufacturers (i.e. Airbus and Boeing) to perform MRO-related works in Asia-Pacific, and also has partnerships with all three major aircraft engine OEMs (i.e. Pratt & Whitney, GE and Rolls-Royce) to provide MRO services of the engines that are being used on the new aircraft models.

All considered, on in-line results, we keep our Fair Value of S$3.70 unchanged, supported by a decent FY19F dividend yield of 3.9% based on 15 May 18 closing price of S$3.33.

Eugene Chua OCBC Investment | https://www.iocbc.com/ 2018-05-16

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