SIAEC – Phillip

Buy for the attractive yields!

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.

  • Sales growth in line with expectations
  • Higher contributions from Associates & JVs
  • Still our top pick in the Transport sector
  • Maintain Buy with unchanged target price of S$5.00

What is the news?

SIAEC reported a 6% improvement in sales and a marginal decline in profit for 1HFY13. SIAEC’s Rolls Royce JVs continue to report strong contributions. However, the other Associates reported lower contributions as compared to the same period last year. Interim dividend increased from 6.0 cents to 7.0 cents with management highlighting that this is “to achieve a better balance between the interim and final dividends”. Outlook statement remains cautious with expectations of sustained demand in the near term.

How do we view this?

The results were in line with our expectations. The FX variance that negatively affected profits by S$12.3mn was non-operating in nature and not a source of concern. We believe that SIAEC has the capacity to maintain their final dividend for the year and bring its full year distribution above last year’s 21cents.

Investment Actions?

SIAEC remains as our top pick in the sector, premised on its pure exposure to the aviation growth story in Asia. We expect the stock to yield more than 5% over the next few years. Maintain Buy.

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