SIAEC 1Q20 in Line; Downgrade to HOLD

• SIA ENGINEERING CO LTD (SGX:S59)'s 1Q20 results were in line with our expectations with revenue/PATMI accounting for 23%/25% of FY20E forecast.
• Consolidated operations performed slightly better than anticipated principally from lower operating costs but this was offset by softer than expected associates/JVs performance.
• SIA Engineering’s business transformation initiatives appear to be on track but the c8% share price appreciation over the past month mutes return potential to our SGD2.85 target price.
• Downgrade to HOLD from BUY.

Associates Dragged the Operating Growth

• Although revenues were flat y-o-y, lower operating costs drove margin improvement and a significant 51% y-o-y increase in EBITDA (albeit from a low base in 1Q19). However this EBITDA growth was offset by weaker than expected associates/JV profit, down c20% y-o-y.
• Engine and components associates/JVs contribution fell c19% y-o-y on account of higher costs incurred for new engine capabilities, while airframe and line maintenance associates/JVs losses widened marginally to SGD0.7m.

Source: Maybank Kim Eng Research - 29 Jul 2019