SIAEC – CIMB

Positives priced in

SIE still offers steady earnings growth and yields of 4.5%, backed by net cash of S$495m. However, we believe its near-term positives have been priced in, as its share price has nicely recovered since our upgrade in Sep, now at 19x CY14P/E,+1.5 s.d. above its 5-year mean.

1H14 core EPS was in line, at 49% of our FY14 forecast. A 7 Sct interim dividend has been declared, similar to 1H13 levels. We keep our target price, still based on blended valuations (19x P/E and DCF). However, we downgrade the stock to Neutral from Outperform in view of limited catalysts for a further re-rating in the near term.

Stable performance

1H14 revenue was stable at S$583m. Hangars have been booked out for the next six months, mainly for more-intensive C checks, especially of A380 aircraft. In 1H14, SIE‟s line-maintenance unit handled 65.5k flights (+17% yoy), thanks to the aggressive growth of LCC volume at Changi Airport. Operating costs were up 1.5% yoy, mainly due to a 5.5% yoy increase in staff costs on higher foreign-worker levies and annual increments, which is not alarming. Only 10% of SIE‟s workforce of 5,500 comprises foreigners. Management expects a “stable” performance ahead as the group leverages its diversified MRO services and presence in key markets.

Associates and JVs rebounded

Associate and JV profit rose 19% yoy in 1H14, led by the engine segment. SAESL continued to benefit from strong growth of Rolls-Royce engine volume. Eagle Services also received more jobs transferred from Pratt & Whitney‟s ceased US operations in Cheshire. Smaller associates/JVs are also past their gestation periods and have started to contribute.

Limited near-term upside

SIE is now trading at 19x CY14 P/E, +1.5 s.d. above its 5-year mean. We see limited catalysts for a further re-rating in the near term. Upside risk could come from a major accretive M&A, which we do not foresee in the near future.

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