SIAEC – Phillip

Another Steady Set of Results

Company Overview

SIA Engineering Company (SIAEC) is a maintenance, repair & overhaul (MRO) company with a dominant market share in Changi Airport's Line Maintenance business. The Group also has significant stakes in joint ventures that contribute approximately half of the Group's profits.

Higher business volume led to increase in sales

• Record contributions from its Rolls Royce JVs

• Change in policy reduced depreciation exp. by S$0.8mn

Maintain Buy with unchanged target price of S$5.00

What is the news?

SIAEC reported a steady set of results with net profit increasing by 2.9%y-y. Profitability at the company level remains poor as margins declined 1.1ppt due to higher labour and subcontracting expenses. Contributions from Associates declined to S$14.8mn in the quarter. SIAEC's Engine Joint Ventures with Rolls Royce (RR) reported the strongest set of results in its history. Depreciation expenses were lower due to a change in accounting policy that reduced expenses by S$0.8mn in the quarter.

How do we view this?

The results were largely in line with our expectations. Strong earnings momentum from the JVs offset the lower contributions from its Associates, in line with our expectations of strong performance at SAESL. We tweaked our estimates to reduce our depreciation expense estimates, lowered contributions from Associates and increased contributions from Joint Ventures.

Investment Actions?

SIAEC remains as our top pick in the sector, premised on its pure exposure to the aviation growth story in Asia. Despite a strong rally since the start of the year, we still expect the stock to sustain dividend yields of >5% over the next few years. Maintain Buy with TP of S$5.00.

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