Maintain BUY, TP: SGD6.19. We remain positive on the stock after results met expectations. We reiterate our view the market has not fully appreciated the hidden value in its key JVs with Rolls Royce, which should benefit from the influx of Trent engines into the market. We have tweaked our TP to SGD6.19 to align our DCF assumptions for revised market risk premium of 5.5% (previous 6.0%). Reiterate BUY.

In-line with expectations. SIAEC reported a steady set of results with net income of SGD69.0mn (+4.7%QoQ, -1.6%YoY) on sales of SGD289.5mn (+2.1%QoQ, -3.7%YoY). Outlook statement highlights stable near term outlook, but cited challenging operating environment with uncertainties facing the global economy.

Core operating profit came in weak. While we caution against reading too much into quarterly performance, core operating profit of the company came in fairly soft at SGD27.7mn (-10.4%QoQ, - 19.5%YoY).

JVs & Associates contribution rose 14%. The joint ventures (Rolls Royce related) and Associates (mostly Pratt & Whitney) reported 8.3% and 23.6% increase in contributions respectively. Despite expectations of near-term weakness with early retirement of some Cathay Pacific’s B747-400s, HAESL managed to report higher contributions of SGD4.6mn in dividends (+24.3%QoQ, +15.0%YoY) to the group.

Strong balance sheet, FCF generation. We wish to flag the strong free cash flow (FCF) of SGD88mn in the quarter and net cash position of SGD619mn as of 30 June (SGD453mn after adjusting for 15cents DPS XD- 23 July). The strong balance sheet and cash generating ability of the business should allow SIAEC to payout increasing level of dividends to shareholders, in our view.

Source: Maybank Kim Eng Research - 23 Jul 2013