Industrial Sector Outlook - Maybank Kim Eng 2019-04-17: On A Recovery Path

Industrial Sector Outlook - Maybank Kim Eng Research | SGinvestors.io SINGAPORE TECH ENGINEERING LTD (SGX:S63) SIA ENGINEERING CO LTD (SGX:S59) SATS LTD. (SGX:S58) SINGAPORE AIRLINES LTD (SGX:C6L) COMFORTDELGRO CORPORATION LTD (SGX:C52)

Industrial Sector Outlook - On A Recovery Path

Aviation services seeing growth; O&M is slowly recovering

  • The outlook for the aerospace MRO industry looks a lot brighter for 2019-2021 from a combination of factors:
    1. a tight freighter market and availability of mid-life and older generation aircraft triggering passenger-to freighter conversion work;
    2. some industry capacity rationalisation;
    3. strong growth in the global commercial aircraft fleet with deliveries from OEMs Airbus and Boeing at record levels of over 1,500 annually; and
    4. investment in secondary and tertiary cites airport infrastructure in APAC combined with growth in LCC fleets expanding flight frequency and the roster of destinations. This bodes well for catering, ground handling, cargo management, refueling, aircraft conversions and other peripheral aviation services.
    On the flipside, MRO shops exposed largely to line maintenance of passenger fleets have to contend with structural headwinds of longer maintenance cycles of newer aircraft.
  • While we do not currently cover the large O&M companies in Singapore (KEPPEL CORPORATION LIMITED (SGX:BN4) and SEMBCORP MARINE LTD (SGX:S51)), we note from company briefings over the past few quarters that the worst of the customer order cancellation risk and provisions (ex-Sete Brazil) are now likely behind. Additionally both companies have successfully sold off the rigs resulting from customer defaults in 2015/2016.
  • Meanwhile, a combination of marketed rig supply shrinking with the scrapping of older rigs and a gradual increase in contract work has driven offshore fleet utilisation levels up to c79% levels at early April 2019, up from c72% levels a year ago. That said, there is still excess capacity in the E&P drilling equipment segment and new order recovery will be slow; yards will need to look for non-drilling solutions to grow in 2019/2020.


ComfortDelGro is back in the comfort zone but valuations are rich

  • The acquisition of Uber by Grab in 2018 was a watershed moment in stabilizing cut-throat industry competition; and COMFORTDELGRO CORPORATION LTD (SGX:C52) was the somewhat fortuitous winner from this development. The stock subsequently went on to being one of the best index component performers of 2018 after being one of the worst in 2017. (see Share Price Performance - Straits Times Index STI Constituents)
  • While the business has now stabilised and is growing again, the growth is pedestrian and doesn’t justify a further rerating unless the company announces some material growth boost or a special dividend payout.


What could go wrong?



Order of preference ST Engineering, SATS, SIA, SIA Engineering



Industrial & Transport Sector Valuation Summary




See also






Neel Sinha Maybank Kim Eng Research | Lai Gene Lih Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2019-04-17
SGX Stock Analyst Report BUY MAINTAIN BUY 4.250 SAME 4.250
BUY MAINTAIN BUY 2.850 SAME 2.850
BUY MAINTAIN BUY 5.800 SAME 5.800
BUY MAINTAIN BUY 11.200 SAME 11.200
HOLD MAINTAIN HOLD 2.450 SAME 2.450



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