SIAEC – MayBank Kim Eng

Look beyond the soft quarter

  • Weak set of 3QFY3/14 results with net profit sliding 9.7% YoY to SGD60.5m. The results disappointed.
  • Economic uncertainties and rising business costs notwithstanding, management expressed confidence that group performance would remain stable.
  • Structural drivers are still intact. Maintain BUY.

 

Disappointing results

SIA Engineering (SIAEC) reported a fairly weak set of 3QFY3/14 results with net profit sliding 9.7% YoY to SGD60.5m. Operating profit shrank 19.2% YoY, weighed down by labour costs, subcontract fees and material expenses. In line with HAECO’s earlier guidance for lower workload at HAESL, dividend contribution from the engine maintenance unit came in lower YoY. SAESL and IECO surprised on the downside, with the weakest earnings contribution in eight quarters at only SGD18.8m. As at end-2013, SIAEC’s net cash position of SGD444m was higher than the SGD425m in the same period the previous year. Despite global economic uncertainties and rising business costs, management expressed confidence that the group’s performance would remain stable.

Structural drivers intact

Although SIAEC’s third-quarter performance came in softer than expected, we believe the structural drivers of the stock are still intact. As a dominant MRO service provider, it is the best proxy to the unprecedented level of expansion at Changi Airport. Its network of associates and joint ventures would also continue to provide a solid stream of earnings and return cash dividends to shareholders. We see the spin-off of its JVs and bumper dividends as potential stock catalysts. SIAEC is one of our key stock picks in the Singapore transportation space. Reiterate BUY and SOTP–based TP of SGD6.34.

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