SIA Engineering Company Ltd (SIAEC) announced earlier this week the completion of the amalgamation of the JVs it has with RollsRoyce Singapore (RRS), namely Singapore Aero Engine Services Pte Ltd (SAESL) and International Engine Component Overhaul Pte Ltd (IECO). SAESL will be the surviving entity. Recall that SIAEC had just earlier this year, completed the divestment of its 10% stake in Hong Kong Aero Engine Services Ltd (HAESL), which is a JV between Hong Kong Aircraft Engineering Company Ltd (HAECO) and RRS.

As IECO also overhauls and repairs aero engine components, SIAEC said that the amalgamated company will be able to generate greater operational efficiencies, enjoy better economies of scale and result in potential cost savings through streamlining of business processes. As this amalgamation is not new news and is not expected to have a material impact on SIAEC’s FY17 financials, we keep our forecasts unchanged for now. Maintain HOLD with the same fair value estimate of S$3.70.

Source: OCBC Research - 6 Oct 2016