SIAEC – OCBC
1QFY15 PATMI a miss
- 1QFY15 PATMI missed consensus
- Earnings uplift ahead from Clark base expansion
- Maintain HOLD
1QFY15 revenue in line but PATMI missed estimates
SIA Engineering Company’s (SIAEC) 1QFY15 revenue increased 1.6% YoY from S$289.4m to S$294.1m, forming 24.3% and 23.9% of our and consensus FY15 forecast respectively. Revenue growth was driven by fleet management segment, which was partially offset by reduction in airframe and component overhaul revenue as heavy checks were fewer than planned. However, lower operating margin and contributions from JV and associates resulted in 1QFY15 PATMI declining 22.3% to S$53.5m. 1QFY15 PATMI missed estimates as it only made up 18.9% and 19.0% of our and consensus FY15 forecast respectively. 1QFY15 operating profit decreased 25.3% to S$20.7m primarily due to higher subcontract costs (+33.3% to S$43.6m) though staff costs were lower (-8.6% to S$51.3m). Share of profits of JV and associates dropped 28.8% to S$30.6m, mainly due to a S$11.6m decrease in contribution from the engine repair and overhaul centers.
Moderate uplift in earnings ahead
Firstly, the commencement of operations at the third hangar of Clark base (Philippines) in Jun-14 will double the base’s capacity. We expect utilisation to be high and will start contributing to earnings for the rest of FY15 as it benefits from regional low cost carriers’ (LCC) capacity growth, whose shoestring budgets push them to opt for lower-cost sites such as Philippines. Secondly, the recently announced JV with Boeing to provide fleet management services to airlines is also expected to be a positive once it is approved and operational. By teaming up with Boeing, one of the two leading aircraft manufacturers, the JV can offer a full aftermarket menu as part of an aircraft purchase agreement, effectively locking in clients at an earlier stage.
We think the trend of lower overhaul work will stay as regional airline capacity growth is primarily in the commoditised LCC segment. Consequently, we lower our FY15 growth forecast for contributions from JV and associates from 7% to 3%. We maintain HOLD but lower our FV from S$4.83 to S$4.71 based on 19.0x PER of 24.8 S-cents FY15F EPS (previous: 25.4 S-cents).