Singapore Aviation 1QFY20 Results Preview - UOB Kay Hian 2019-07-26: SIA & SIAEC To Show Flat Y-o-y Earnings; STE Could Deliver > 13% Y-o-y Growth

Singapore Aviation - UOB Kay Hian Research | SGinvestors.io SINGAPORE TECH ENGINEERING LTD (SGX:S63) SIA ENGINEERING CO LTD (SGX:S59) SINGAPORE AIRLINES LTD (SGX:C6L)

Singapore Aviation 1QFY20 Results Preview - SIA & SIAEC To Show Flat Y-o-y Earnings; STE Could Deliver > 13% Y-o-y Growth

  • We expect Singapore Airlines (SGX:C6L) to report a 5% y-o-y decline in 1QFY20 net profit based on pre-SFRS 16 estimates as the incremental pax revenue is expected to be offset by weaker cargo earnings.
  • We expect ST Engineering (SGX:S63) to report > 13% y-o-y net profit growth due to partial contribution from MRAS and higher orderbook recognition.
  • We expect SIA Engineering (SGX:S59) to report flat y-o-y earnings, mainly due to a low base. We expect top-line to remain weak due to the grounding of B737 Max aircraft and potential loss from Jet Airways.
  • Maintain MARKET WEIGHT.



WHAT’S NEW


We expect Singapore Airlines to report low-single-digit yoy decline in net profit for 1QFY20 on pre-SFRS16 numbers.


ST Engineering (STE) could report > 13% net profit growth in 2Q19.

  • We expect the following key earnings drivers:
    • the consolidation of MRAS, which could lead to S$3m-4m in profits;
    • lower finance costs following the redemption of an MTN;
    • higher orderbook revenue recognition for the quarter; and
    • lower losses from Miltope.
    These are expected to be offset slightly by higher D&A costs following the adoption of lease accounting.
  • We also expect marine PBT to rise y-o-y, underpinned by improved profitability in the shipbuilding segment. We expect ST Engineering (SGX:S63) to maintain its 5 S cents interim dividend.
  • What to look for in ST Engineering’s 2Q19 results.
    1. Impact from MRAS acquisition and extent of organic earnings growth;
    2. size of stock obsolescence charges;
    3. extent of improvement in marine profitability and outlook; and
    4. orderbook growth post incorporation of MRAS.
  • We would also await ST Engineering’s guidance on a specific timeline for the completion of the Newtec acquisition as ST Engineering had previously guided that it will be completed in 2H19.
  • See ST Engineering Share Price; ST Engineering Target Price; ST Engineering Analyst Reports; ST Engineering Dividend History; ST Engineering Announcements; ST Engineering Latest News.

SIA Engineering (SIAEC) is likely to turn in flat earnings.



ESSENTIALS


Remain neutral on Singapore Airlines and SIA Engineering.

  • Rumours of M&A notwithstanding, we believe earnings outlook is not rosy, given high labour cost, competition from regional maintenance centres and low maintenance requirement for newer aircraft. For Singapore Airlines, it remains to be seen to what extent the improvement in pax traffic and load factor can compensate for lower cargo traffic and very likely lower yields.

ST Engineering has risen 23.2% ytd, excluding dividend; our target price of S$4.70 remains the highest in the street.

  • If ST Engineering reports single-digit earnings growth or lowers dividend payout, we believe investors will be disappointed. For now, we maintain our target price but suggest that investors accumulate on price weakness.





K Ajith UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-07-26
SGX Stock Analyst Report BUY MAINTAIN BUY 4.700 SAME 4.700
HOLD MAINTAIN HOLD 2.550 SAME 2.550
HOLD MAINTAIN HOLD 9.500 SAME 9.500



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