SIA Engineering Company Limited (“SIAEC”) reported an 11.3% YoY decline in its 4QFY15 revenue to S$276.0m while 4QFY15 operating expenses fell by only 8.7% YoY to S$252.9m, which resulted in a 2.6ppt decrease in its operating profit margin to 8.4%. Share of profits from associated and JV companies also decreased by 41.0% to S$21.3m, which led to a 36.5% YoY drop in 4QFY15 PATMI to S$41.4m. For FY15, SIAEC’s revenue decreased by 4.9% to S$1.12b on lower airframe and component overhaul revenue (ACS), but partially mitigated by higher fleet management (FMP) revenue.

Note that higher FMP revenue means higher subcontract costs even though material costs dropped with lower ACS revenue. Share of profits of associated and JV companies fell by 34.6% to S$106.3m for FY15. Consequently, FY15 PATMI came in slightly below our expectation, recording a 31.0% decrease to S$183.3m, which formed 97.3% of our forecasts. Pending management briefing later in the morning, we maintain our SELL rating but place our FV of S$3.80 under review.

Source: OCBC Research - 13 May 2015