SIA Engineering Company Ltd’s (SIAEC) 1QFY18 revenue came in flat YoY at S$272.8m but operating profit was S$18.1m compared to S$1.6m operating loss the same period last year due to a one-off provision made last year relating to staff remuneration arising from the gain on divestment of its 10% stake in HAESL. Excluding this one-off, core operating profit fell 8.1% YoY to S$18.1m on higher operating expenses (+2.9%) driven mainly by higher staff costs.
1QFY18 share of profits of associates and JVs increased 1.9% YoY to S$21.1m, as a result of higher contributions from associates, but offset by lower contributions from SAESL due to lower work content of engines shipped. Consequently, stripping out one-off items including divestment gain of S$141.6m recorded in 1QFY17, 1QFY18 core PATMI fell 6.2% YoY to S$36.2m.
Looking ahead, the maintenance, repair and overhaul (MRO) industry continues to face headwinds with lower work content required and longer maintenance intervals on new aircraft/engine models. The structural shift in MRO requirements of newer aircraft/engine models towards breaking down traditional heavier checks into multiple phases of line maintenance (i.e. performed on the apron) does not help as it also means revenue is recognised over a longer period of time.
However, SIAEC has been actively entering into partnerships with the OEMs (both aircraft and engines) such as the one with Pratt & Whitney for the engine that powers the fast growing A320neo aircraft favoured by the low cost carriers (LCCs). SIAEC is also continuing its pursuit to grow its line maintenance (LM) business by investing to provide LM services in Osaka. All said, we do not expect these recent partnerships and investments made to be accretive over the near to medium term but are positive that SIAEC’s partnerships will be one of the key drivers for future growth.
On missed core 1QFY18, we pare our FY18F and FY19F PATMI by 6.2% and 4.6%, respectively. Consequently, our FV decreases from S$3.75 to S$3.70. Supported by a forward dividend yield of 3.4%, maintain HOLD on SIAEC.
Source: OCBC Research - 26 Jul 2017
Chart | Stock Name | Last | Change | Volume |
---|
Created by kimeng | Dec 29, 2022
Created by kimeng | Dec 29, 2022