SIA Engineering Company Ltd’s (SIAEC) 2QFY18 revenue grew 3.7% YoY to S$274.7m on higher airframe and component overhaul services (ACS) and line maintenance (LM) revenue but partially offset by lower fleet management (FM) revenue. Operating expenses rose 6.2% YoY to S$255.2m largely due to higher staff costs. However, as share of profits from associated and JV companies jumped 33.1% to S$22.9m, SIAEC’s 2QFY18 PATMI rose 7.3% YoY to S$38.1m.

For 1HFY18, revenue rose 2.1% YoY to S$547.5m, with the increase in LM revenue partly offset by lower FM revenue. Excluding one-off provision recorded in 1HFY17, 1HFY18 operating expenses increased 3.6% YoY to S$509.9m largely due to higher staff costs.

SIAEC also recorded a 16.1% increase in contribution of profits from associated and JV companies to S$44.0m, with higher contribution from most associates (especially Eagle Services Asia) as work content of its engines shipped was higher.

Consequently, stripping out one-off impact arising from divestment of its 10% stake in HAESL in 1HFY17, SIAEC’s 1HFY18 core PATMI grew 1.1% YoY to S$74.3m. Pending management briefing, we place both our HOLD rating and FV of S$3.70 under review for now.

Source: OCBC Research - 6 Nov 2017