SIAEC – DBSV
No let up in steam
• 1Q13 net profits of S$70m in line with estimates
• Aviation industry still growing decently with lower oil prices offering more relief; SIE’s growth unimpeded
• Dividend yield in excess of 5% largely secured
• Maintain BUY with higher TP of S$4.40
Good start to the year. 1Q-FY13 results were in line with our expectations, with SIE reporting S$70.1m in net profits, up 3% yo-y and 6% q-o-q, on the back of 8% y-o-y growth in revenues. Revenue growth continues to be driven mainly by the increasing fleet size under SIE’s Fleet Management Programme (FMP). Given the relatively lower margins in the FMP segment (more material content), 1Q13 operating margins were 1ppt lower y-o-y at 11.4%, but this is still an improvement over the levels seen in the last two quarters, owing to lower sub-contract costs incurred during the quarter. Contribution from associates and JVs remained stable at S$40m, accounting for more than 50% of group PBT.
Stable outlook. With oil prices currently subsiding from the highs in early 2012, this will provide some relief to the airline industry in 2012. Load factors in the region continue to be stable and aircraft movements at Singapore’s Changi Airport continue to hit new records (10% growth during 1H-CY12), driven mainly by traffic from other Asian countries and the Middle East. Thus, with SIE’s key presence in the Asia-Pacific and the Gulf (Bahrain), we believe demand for the group’s core MRO businesses will remain stable in the near term. We expect SIE to record a steady 5 to 6% earnings growth in FY13/14. Note that SIE was recently been awarded a five-year fleet management contract worth S$166m by Cebu Air to maintain its growing fleet of A320 aircrafts.
Maintain BUY, likely yield of close to 5.5%. With its steady earnings outlook, strong balance sheet and healthy yield prospects, SIE remains a safe haven stock with limited possibility of earnings shocks. The group had ended the quarter with about S$574m in net cash, and we remain comfortable with our 22Scts dividend projection for FY13, which implies an 85% payout ratio. Hence, we maintain our BUY call on the stock. Our TP – based on the blended valuation methodology – is revised up to S$4.40 as we lower our WACC assumption from 7.8% to 7.4% in our DCF calculations to reflect growing confidence in the steady nature of SIE’s earnings and cash flow.