SIAEC – CIMB

Yield compression

SIE’s share price has outperformed the index by 12% YTD due to investors’ preference for high yield plays. However, with its less-than-spectacular FY3/13 results and dividend yield compression to 4.4%,we see limited upside to the share price.Maintain Neutral.

FY13 net profit is below expectations, at 94% of our forecast and 97% of consensus, because of a revenue shortfall. 4Q net profit accounted for only 23% of our FY13. SIE increased its dividend payout from 85% to 90% with a final DPS of 15 Scts (total DPS: 22 Scts). We cut our FY13-15 EPS by 8% for lower revenue but raise our target price, still based on blended P/E (19x from 15x) and DCF, in view of increased appetite for yield stocks.

Lower revenue, higher staff costs

4Q revenue fell 10% yoy but was stable qoq, taking FY13 revenue to S$1.15bn. FY13 revenue from repair and overhaul fell 5% yoy to S$725m due to lower volume of FMP and project revenue (cabin interior reconfiguration of aircraft). Revenue from line maintenance improved 5% yoy to S$421m, backed by a higher number of flights handled/day (+1% qoq, +5% yoy) in Changi Airport. EBITDA margin dipped 30bp to 14.3% due to higher staff cost, which accounted for 43% of operating costs (previously 40%). EBITDA margin would have been 11.6%, if not for the S$3.6m write-back of debt provisions and S$3.3m forex gain.

Weaker associates

Associates’ profit fell 30% yoy to S$63m while JV profit rose 22% yoy to S$96.2m. This could due to a weaker showing by Eagle Services (services P&W engines) compared to SAESL which services Rolls Royce engines.

Zero growth in earnings

Despite steady growth in flights handled in Changi airport in FY13 with no major capacity cuts among airlines, SIE achieved zero profit growth vs. its historical c.4% p.a. Management expects its performance to be stable in the near term but emphasised that the operating environment remains challenging due to uncertainties in the global economy.

SIAEC – CIMB

Yield compression

SIE’s share price has outperformed the index by 12% YTD due to investors’ preference for high yield plays. However, with its less-than-spectacular FY3/13 results and dividend yield compression to 4.4%,we see limited upside to the share price.Maintain Neutral.

FY13 net profit is below expectations, at 94% of our forecast and 97% of consensus, because of a revenue shortfall. 4Q net profit accounted for only 23% of our FY13. SIE increased its dividend payout from 85% to 90% with a final DPS of 15 Scts (total DPS: 22 Scts). We cut our FY13-15 EPS by 8% for lower revenue but raise our target price, still based on blended P/E (19x from 15x) and DCF, in view of increased appetite for yield stocks.

Lower revenue, higher staff costs

4Q revenue fell 10% yoy but was stable qoq, taking FY13 revenue to S$1.15bn. FY13 revenue from repair and overhaul fell 5% yoy to S$725m due to lower volume of FMP and project revenue (cabin interior reconfiguration of aircraft). Revenue from line maintenance improved 5% yoy to S$421m, backed by a higher number of flights handled/day (+1% qoq, +5% yoy) in Changi Airport. EBITDA margin dipped 30bp to 14.3% due to higher staff cost, which accounted for 43% of operating costs (previously 40%). EBITDA margin would have been 11.6%, if not for the S$3.6m write-back of debt provisions and S$3.3m forex gain.

Weaker associates

Associates’ profit fell 30% yoy to S$63m while JV profit rose 22% yoy to S$96.2m. This could due to a weaker showing by Eagle Services (services P&W engines) compared to SAESL which services Rolls Royce engines.

Zero growth in earnings

Despite steady growth in flights handled in Changi airport in FY13 with no major capacity cuts among airlines, SIE achieved zero profit growth vs. its historical c.4% p.a. Management expects its performance to be stable in the near term but emphasised that the operating environment remains challenging due to uncertainties in the global economy.

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