SIAEC – Maybank Kim Eng

Special dividend surprise

  • 4QFY3/14 net profit of SGD65.2m (-1.1% YoY) is marginally below expectations on weak JV contributions.
  • Special DPS of 5 SGD cts brings full-year payout to 25 SGD cts, up 14% YoY and translates to attractive 5.2% yield.
  • FY3/15E-17E forecasts revised by -7%/-1%/+7% on delayed ramp-up in workload. Maintain BUY and TP of SGD5.75.

 

What’s New

SIA Engineering (SIAEC) reported 4QFY3/14 net profit of SGD65.2m (-1.1% YoY), marginally below our expectations. This was due to weak contributions from its Rolls-Royce JVs which we had anticipated (note), but the sharp magnitude of decline still took us by surprise. On a more positive note, full-year DPS payout rose 14% YoY to 25 SGD cts, including a special DPS of 5 SGD cts. This translates to a solid dividend yield of 5.2%, which compares favourably against its peers. Management expects group performance to remain stable in the year ahead.

What’s Our View

While weakness may persist for SIAEC’s Rolls-Royce JVs in the near term, we reiterate that longer-term trends remain positive as the global Trent engine fleet is expected to double over the next five years. Management is unfazed by the reduction in workload due to the improved reliability of Trent 700 engines, confident that maintenance work is merely delayed. The opening of its third hangar in the Philippines next month means contribution from the airframe maintenance business should improve in 2HFY3/15E. We tweak our FY3/15E/16E/17E EPS forecasts by -7%/-1%/+7%, mainly to reflect the delayed ramp-up in workload for its Trent engines. Our TP of SGD5.75 remains intact, based on a higher target multiple of 23x FY3/15E (previously 21x) to account for stronger EPS growth over a three-year horizon. As the best proxy to the structural air traffic growth in the region, SIAEC is our preferred exposure in the Singapore Transportation space. BUY reiterated.

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