SIAEC – DBSV

Resilience pays

4Q and FY12 results in line with expectations; higher revenues offset by lower operating margins

Final dividend slightly better than expected at 15Scts

No major signs of stress in the aviation market and outlook for MRO services remains steady,

Maintain BUY with revised TP of S$4.30

Highlights

Another strong quarter. 4QFYMar12 results were in line with our estimates, as SIE reported S$269m in net profit for FY12, up 4% y-o-y, on the back of 6% rise in revenues. While 4Q was another record quarter for revenues, operating margins were subdued at 10.3%, due to the higher proportion of revenue from fleet management programme and cabin interior reconfiguration projects, which involve higher overheads and subcontract costs. Despite the weak US$, contribution from associates and JVs continued to recover– up almost 9% y-o-y to S$157m – and represented 52% of SIE’s PBT.

Dividend adds cheer. The company ended the year with close to S$500m net cash and declared a final DPS of 15Scts for FY12, in addition to the interim DPS of 6Scts paid earlier. This is higher than the final DPS of 14Scts declared in FY11 (though there was a special payout of 10Scts in FY11), and represents a healthy payout ratio of about 85%.

Our View

Stable outlook. The risks of slower global economic growth and high fuel costs continue to weigh on the airline industry in 2012. However, we do not see any alarming signs yet and most carriers in the Asia-Pacific region continue to add capacity. Passenger and aircraft movements at Singapore’s Changi Airport continue to hit new records (13% y-o-y growth during 1Q-CY12) and SIE’s management believes demand for its core businesses will remain stable in the near term. We expect SIE to record steady 5-6% growth in FY13/14F.

Recommendation

Maintain BUY with fairly secure yield of 5.5%. With its steady earnings outlook, strong balance sheet and healthy dividend prospects, SIE has outperformed the choppy market in recent months. Given the prevailing economic uncertainties, high oil prices and limited signs of growth acceleration in the US and EU, we believe SIE will continue to generate interest as a safe haven stock with limited possibility of earnings shocks. Hence, we maintain our BUY call on the stock. Our TP is rerevised up to S$4.30 as we roll over our valuations to FY13.

SIAEC – DBSV

Resilience pays

4Q and FY12 results in line with expectations; higher revenues offset by lower operating margins

Final dividend slightly better than expected at 15Scts

No major signs of stress in the aviation market and outlook for MRO services remains steady,

Maintain BUY with revised TP of S$4.30

Highlights

Another strong quarter. 4QFYMar12 results were in line with our estimates, as SIE reported S$269m in net profit for FY12, up 4% y-o-y, on the back of 6% rise in revenues. While 4Q was another record quarter for revenues, operating margins were subdued at 10.3%, due to the higher proportion of revenue from fleet management programme and cabin interior reconfiguration projects, which involve higher overheads and subcontract costs. Despite the weak US$, contribution from associates and JVs continued to recover– up almost 9% y-o-y to S$157m – and represented 52% of SIE’s PBT.

Dividend adds cheer. The company ended the year with close to S$500m net cash and declared a final DPS of 15Scts for FY12, in addition to the interim DPS of 6Scts paid earlier. This is higher than the final DPS of 14Scts declared in FY11 (though there was a special payout of 10Scts in FY11), and represents a healthy payout ratio of about 85%.

Our View

Stable outlook. The risks of slower global economic growth and high fuel costs continue to weigh on the airline industry in 2012. However, we do not see any alarming signs yet and most carriers in the Asia-Pacific region continue to add capacity. Passenger and aircraft movements at Singapore’s Changi Airport continue to hit new records (13% y-o-y growth during 1Q-CY12) and SIE’s management believes demand for its core businesses will remain stable in the near term. We expect SIE to record steady 5-6% growth in FY13/14F.

Recommendation

Maintain BUY with fairly secure yield of 5.5%. With its steady earnings outlook, strong balance sheet and healthy dividend prospects, SIE has outperformed the choppy market in recent months. Given the prevailing economic uncertainties, high oil prices and limited signs of growth acceleration in the US and EU, we believe SIE will continue to generate interest as a safe haven stock with limited possibility of earnings shocks. Hence, we maintain our BUY call on the stock. Our TP is rerevised up to S$4.30 as we roll over our valuations to FY13.

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