SIA Engineering Company Ltd’s (SIAEC) reported an 6.6% YoY increase in 4QFY16 revenue to S$294.2m driven mainly by line maintenance (LM) and fleet management (FM) segments, while operating expenses rose 5.5% to S$266.7m due to higher material costs and an exchange loss of S$8.2m compared to S$1.6m exchange gain in 4QFY15.

4QFY16 contributions from associated and JV companies came in 14.1% YoY lower at S$18.3m. Consequently, 4QFY16 PATMI came in flat at S$41.4m. For FY16, SIAEC’s revenue fell by 0.7% to S$1.11b on lower airframe and component overhaul revenue, but partially mitigated by higher LM and FM revenue.

Even though FY16 operating expenses dropped at a higher rate of 2.7% to S$1.01b, PATMI still came in 3.7% lower at S$176.6m as share of profits of associated and JV companies fell by 11.4% to S$94.2m due to lower work content on engines.

However, stripping out one-off items, SIAEC’s FY16 core PATMI was in-line with consensus as it rose 2.0% to S$181.0m. Pending management briefing later today, maintain HOLD rating but place our FV of S$3.70 under review for now.

Source: OCBC Research - 11 May 2016