SIA Engineering - Maybank Kim Eng 2019-11-04: 2Q20 A Modest Beat

SIA ENGINEERING CO LTD (SGX:S59)

SIA Engineering - 2Q20 A Modest Beat

SIA ENGINEERING CO LTD (SGX:S59)'s 2Q20 PATMI was slightly ahead of ours and the street’s expectations. Transformation initiatives to improve cost efficiencies and diversify its suite of service offerings is starting to show results with revenues relatively stable for the past few quarters and EBIT margins improving since mid-2018. See SIA Engineering Announcements.

We raise our FY21-22 PATMI forecast by 3-6% and DCF based Target Price (unchanged 8% WACC; 2% TGR) by 5% to SGD3.00 from SGD2.85. See SIA Engineering Share Price; SIA Engineering Target Price/

SIA Engineering's 2Q20 core PATMI of SGD44.7m was up 18% y-o-y/7% q-o-q. 1H19 core PATMI grew 10% y-o-y and accounted for 52% of our FY19E.
SIA Engineering’s 2H is typically a seasonally stronger one. While 2Q revenues grew a pedestrian 1.3% y-o-y and associate/JV profits fell 9%, the lion’s share of bottom-line growth was driven by management’s ongoing cost control and efficiency improvement efforts.
The poor associate/JV performance should be transient in our view due to front loading of costs at associate Eagle Services Asia which on boarded aftermarket MRO of a relatively new Pratt & Whitney engine family (powering Airbus A220, A320neo and Embraer E190 aircraft).
Interim dividend was unchanged at 3cts/share (73% PATMI pay-out). See SIA Engineering Dividend History.

We estimate that SIA Engineering gained c.160bps market share in line maintenance to 81.6% in its home base at Changi. SIA Engineering saw a 2.7% increase in flights handled in Singapore during 1H20 although flights at Changi fell c1.2% during this period.
The market share gain was partly through acquisition of new customers like Vistara, Jeju Air starting services to Singapore, and AirAsiaX (AAX MK) increasing flight frequency as we highlighted in our recent sector note Possible cold snap in autumn, Oct 23, 2019.

One of SIA Engineering’s various new ventures expected to start contributing fairly soon is its associate (49% stake) with NokScoot for line maintenance of its fleet at Don Muang Airport in Bangkok. We think this toe-hold in the Thai market (Bangkok airports alone handle 2x the daily flight volume at Changi) is important and has high growth potential over the medium term.

Neel Sinha Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-11-04

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