SIAEC – CIMB

Unwavering confidence

We like SIE’s net-cash balance sheet and attractive dividend yieldsof about 6%. Despite a choppy global outlook, we continue to expect decent earnings growth backed by strong demand for MRO.

FY12 net profit is in line at 99% of our forecast and consensus. SIE declared a final DPS of 15 Scts, bringing FY12 DPS to 21 Scts for an 86% payout, as expected. We adjust our EPS by -0.4% for housekeeping matters and maintain Outperform and target price (blended P/E and DCF).

More work in the hangar

We expect average earnings growth of 6% for FY13-15 from an expanding fleet management programme and fleet size as well as strong demand for airframe MRO. We believe hangars are booked out with good visibility and at least 70% utilisation in the next five years.

4Q12 revenue was another record, at S$316.5m (+16% yoy), thanks to a bigger workload from fleet management, MRO and a cabin interior reconfiguration project for four B777-300 aircraft. EBITDA margins dipped to 13.5% from 14.8% in 4Q12, we believe due to higher outsourcing costs for fleet management.

JVs and associates back to pre-crisis levels

Share of profits from associates and JVs grew by about 9 % yoy to S$157m in FY12, after being hit in 2010-11. We expect 10% yoy growth in FY13-15, backed by stronger business volumes, reflecting the recovery in its engine and component business. Associates and JVs should contribute about 60% to SIE’s net profit.

Strong cash and inexpensive

SIE is trading at about 14.7x CY13 P/E, slightly below its 5-year average of 15x. We believe the market has not priced in its earnings growth through 2015 as it is now trading at its Mar 10 valuations when its earnings slipped 10%. SIE also boasts a strong balance sheet with net cash of S$496m.

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