SIA Engineering Company Ltd’s (SIAEC) 2QFY17 core PATMI declined 11.2% YoY to S$35.7m, on the back of a 0.5% decrease in revenue to S$264.8m and a 0.5% increase in operating expenses to S$240.3m. Higher operating expenses were driven by increases in material and staff costs, which were partially offset by lower subcontract costs.

2QFY17 contributions from associated and JV companies also came in 8.0% YoY lower at S$17.2m, mainly due to the 18.8% fall in contributions from the engine overhaul centres.

For 1HFY17, revenue fell 1.3% YoY to S$536.4m but PATMI jumped 172.6% to S$233.9m. After stripping out the one-time impact arising from the divestment of its stake in HAESL (JV with Rolls-Royce) and other nonrecurring items, SIAEC’s 1HFY17 core PATMI missed our expectations as it fell 6.9% YoY to S$74.3m, which formed only 45.5% of our FY17 forecast. SIAEC also cut its interim dividend by 2.0 S-cents to 4.0 S-cents for 2QFY17.

Pending management briefing today, maintain HOLD on SIAEC but place our FV of S$3.63 under review.

Source: OCBC Research - 2 Nov 2016

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