SIAEC – CIMB

Dividend play

The final dividend of 18 Scts could be the only positive from SIE’s results and the main reason for holding the stock. FY14’s core net profit was below our expectations (at 94% of our forecast), but in line with consensus (at 98% of consensus FY). Revenue growth was slower than expected at 2.7% compared to our forecast 7%. Higher subcontractor costs were also the reasons for SIE’s 3% yoy dip in earnings. We cut our FY15-17 EPS by 7-10% for slower revenue growth. Our target price (still based on blended valuations of 19x P/E & DCF) is reduced accordingly. Our Hold rating is maintained. Rerating catalysts could come from stronger-than-expected revenue and associates/JV growth.

104% dividend payout

SIE declared a final dividend of 18 Scts, bringing its total dividend to 25 Scts, with a total payout of 104%. This is on the back of its net cash of S$536m (+2% yoy). We believe this is helped by higher dividends repatriated from associates and JVs. This keeps the yield reasonably attractive at about 5%.

Slow revenue growth, higher sub-contractors, associates dominate profits

FY14’s revenue grew by 2.7% to S$1.18bn. Line maintenance grew by 3.5% yoy to S$438m, in line with our expectations. However, airframe MRO and fleet management grew by 2.6% yoy to S$744m vs. our expected S$795m. Operating costs were up 4% yoy to S$1.06bn. Staff costs were kept stable at 43% of total op. costs. However, subcontractor costs grew 22% yoy to S$43m (or 16% of total op. costs), possibly due to more outsourced work. Associates/JV remained the largest contributor at 61% of SIE’s PBT (+2% yoy).

Stable outlook

Management said that the demand for MRO services in Asia has continued to grow, but the aviation industry faces competitive challenges which have exerted pressure on MRO rates. Overall, the performance of the group is expected to remain stable, management said.

Limited near-term upside

SIE is trading close to +1 s.d above its 5-year mean. We see limited catalysts in the near-term given the muted revenue and earnings growth.

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