SIAEC – DBSV

Another steady quarter

  • 2QFYMar13 net profit on track with our estimates
  • Outlook for MRO demand remains fairly stable
  • Higher interim DPS of 7Scts declared
  • Maintain BUY for resilient earnings and >5% yield, TP is unchanged at S$4.40

Highlights

Headline net profit affected by forex losses. 2QFY13 net profit of S$67.1m came in line with our expectations, and 1HFY13 net profit accounts for more than 48% of our full year forecast. Net profit is down 6% y-o-y, but this is largely due to a couple of noncore items: i) forex loss of S$3.5m in 2Q13 compared to a forex gain of S$7.1m in 2Q12; and ii) S$3.1m tax writeback in 2Q12. Without the impact of these items, net profit would have been up about 15% y-o-y, on the back of a 4% growth in revenue to S$284m.

Core margins held up. Operating margins held largely steady on a sequential basis, at about 11.1%, which would have been higher at 12.2% if not for the forex losses. Contribution from JV/ associates was down about 4% y-o-y to S$39m, which is somewhat disappointing, but largely due to depreciation in the US$.

Our View

Steady outlook. Management continues to expect sustained demand for its core businesses in the near term, despite the ongoing challenges to the health of the airline industry. SIE should benefit from the growth in traffic in the resilient Asia-Pacific region. In 2Q13, the company won a S$166m MRO contract from Cebu Air, which further expands its fleet management business to cover 211 aircraft.

Recommendation

Dividend expectations intact, maintain BUY. SIE declared a higher interim DPS of 7Scts (compared to 6Scts interim DPS in 1HFY12) to achieve a better balance between interim and final dividends. Balance sheet continues to be robust and SIE closed the quarter with S$432m in net cash, higher compared to S$389m net cash at this point last year. While we lower our FY13/14F earnings estimates by about 1% each to account for forex losses, we believe SIE can continue to sustain total DPS of about 22Scts per year, which translates to a healthy yield of 5.3% at current prices, in addition to about 5% earnings growth. Hence, we retain our BUY call and TP of S$4.40.

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