• 1HFY13 EPS is 49% of our FY13 estimate
  • S$3.1m write-back of tax provision
  • Stable outlook in near term

1HFY13 financials in line with expectations

SIA Engineering Co Ltd’s (SIAEC) 1HFY13 financial results were generally in line with our expectations. Basic EPS for 1HFY13 was 12.47 S cents, 49% of our FY13F estimate of 25.6 S cents. Revenue climbed by 6.4% YoY to S$585m, attributable mainly to revenue from materials, fleet management program and line maintenance. Operating margin declined 1.4ppt from 1HFY12 to 11.1% in 1HFY13 because of higher material cost, exchange loss, and increase in subcontract and staff costs. 1HFY13 recorded an exchange loss of S$3.7m versus an exchange gain of S$8.6m a year ago.

Increase in contribution from associates and JVs

Share of profits from associated and joint venture companies increased 1.4% YoY to S$78.8m, accounting for 51% of SIAEC’s pretax profits. 1HFY13 PATMI declined 1.5% YoY to S$137.2m chiefly because profit for the period a year ago included a S$3.1m write-back of tax provision. To achieve a better balance between the interim and final dividends, SIAEC has declared an interim dividend of 7 S cents, an increase of 1 S cents per share over last year.

Sustained demand in near term

Management expects that that demand for the company’s core businesses will be sustained in the near term. SIAEC acknowledges that the operating environment poses challenges as the global economy continues to affect the aviation industry. Management will continue to be vigilant about cost control and productivity improvements.

Maintain HOLD

Rolling our valuation forward, we use 3QFY13-2QFY14 basic EPS of 26.2 S cents and a P/E multiple of 15.8x (half a standard deviation higher than the 4-year average of 14.6x). We increase our fair value estimate from S$4.04 to S$4.14 and maintain our HOLD rating on SIAEC.

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