SIA ENGINEERING CO LTD (SGX:S59)
SIA Engineering - Run Its Course For Now
SIAEC 1Q20 in line; Downgrade to HOLD
- SIA ENGINEERING CO LTD (SGX:S59)'s 1Q20 results were in line with our expectations with revenue/PATMI accounting for 23%/25% of FY20E forecast.
- Consolidated operations performed slightly better than anticipated principally from lower operating costs but this was offset by softer than expected associates/JVs performance.
- SIA Engineering’s business transformation initiatives appear to be on track but the c8% share price appreciation over the past month mutes return potential to our SGD2.85 target price.
- Downgrade to HOLD from BUY.
Associates dragged the operating growth
- Although revenues were flat y-o-y, lower operating costs drove margin improvement and a significant 51% y-o-y increase in EBITDA (albeit from a low base in 1Q19). However this EBITDA growth was offset by weaker than expected associates/JV profit, down c20% y-o-y.
- Engine and components associates/JVs contribution fell c19% y-o-y on account of higher costs incurred for new engine capabilities, while airframe and line maintenance associates/JVs losses widened marginally to SGD0.7m.
Guidance issues linger.
- SIA Engineering’s outlook statement indicates that six B737MAX and two B787—10 aircraft by its customers Silkair and SINGAPORE AIRLINES LTD (SGX:C6L) could potentially prolong the their fleets.
Minor forecast tweaks; valuation unchanged
- We have made minor sub-1% in SIA Engineering’s recently released FY19 annual report. We believe SIA Engineering share price sharp appreciation of the past month has little of SIA Engineering being a potential upside potential SGD2.85 Target Price now at single rating to HOLD from BUY.
Neel Sinha
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-07-29
SGX Stock
Analyst Report
2.850
SAME
2.850
