Author: kktan
SIAEC – Phillip
Another Steady Set of Results
Company Overview
SIA Engineering Company (SIAEC) is a maintenance, repair & overhaul (MRO) company with a dominant market share in Changi Airport's Line Maintenance business. The Group also has significant stakes in joint ventures that contribute approximately half of the Group's profits.
• Higher business volume led to increase in sales
• Record contributions from its Rolls Royce JVs
• Change in policy reduced depreciation exp. by S$0.8mn
• Maintain Buy with unchanged target price of S$5.00
What is the news?
SIAEC reported a steady set of results with net profit increasing by 2.9%y-y. Profitability at the company level remains poor as margins declined 1.1ppt due to higher labour and subcontracting expenses. Contributions from Associates declined to S$14.8mn in the quarter. SIAEC's Engine Joint Ventures with Rolls Royce (RR) reported the strongest set of results in its history. Depreciation expenses were lower due to a change in accounting policy that reduced expenses by S$0.8mn in the quarter.
How do we view this?
The results were largely in line with our expectations. Strong earnings momentum from the JVs offset the lower contributions from its Associates, in line with our expectations of strong performance at SAESL. We tweaked our estimates to reduce our depreciation expense estimates, lowered contributions from Associates and increased contributions from Joint Ventures.
Investment Actions?
SIAEC remains as our top pick in the sector, premised on its pure exposure to the aviation growth story in Asia. Despite a strong rally since the start of the year, we still expect the stock to sustain dividend yields of >5% over the next few years. Maintain Buy with TP of S$5.00.
RafflesMed – Kim Eng
Valuation gap has closed
• Raffles Medical reported a 14.9% YoY increase in 2Q12 revenue to SGD76.9m while corresponding net profit rose by 6.9% YoY to reach SGD12.4m. Results were within our expectations with 1H12 net profit making up 44% of our FY12F forecast. The company also declared an interim dividend of 1.0 cents per share.
• As expected, the company experienced margin compression due to higher staff cost, following wage and headcount increases. However, Raffles Medical has the capacity to raise pricing and we expect it to do so in the following quarters, which would mitigate the effects of the higher staff cost.
• We previously highlighted the deep valuation discount between Raffles Medical and its peers. Given the 18% surge in share price after our last BUY call, the valuation gap has now closed. While we maintain our SGD2.71 DCF-based target price, we downgrade the stock to a HOLD given that potential upside is now 5%. Implied FY12F/13F PERs based on our target price are 26.7x and 23.3x respectively.
RafflesMed – Kim Eng
Valuation gap has closed
• Raffles Medical reported a 14.9% YoY increase in 2Q12 revenue to SGD76.9m while corresponding net profit rose by 6.9% YoY to reach SGD12.4m. Results were within our expectations with 1H12 net profit making up 44% of our FY12F forecast. The company also declared an interim dividend of 1.0 cents per share.
• As expected, the company experienced margin compression due to higher staff cost, following wage and headcount increases. However, Raffles Medical has the capacity to raise pricing and we expect it to do so in the following quarters, which would mitigate the effects of the higher staff cost.
• We previously highlighted the deep valuation discount between Raffles Medical and its peers. Given the 18% surge in share price after our last BUY call, the valuation gap has now closed. While we maintain our SGD2.71 DCF-based target price, we downgrade the stock to a HOLD given that potential upside is now 5%. Implied FY12F/13F PERs based on our target price are 26.7x and 23.3x respectively.
RafflesMed – DMG
Valuations appear rich
Raffles Medical achieved PATMI of S$12.4m for 2Q12 (+6.8% YoY), as revenue grew 14.9% YoY. The results were in line with expectations. Revenue growth was boosted by an increase in both patient volume and revenue intensity. Staff cost was higher as expected, as Raffles Medical hired more staff in preparation for operations at Thong Sia to begin in mid-2013. Management remains confident that it would be able to maintain its dividends (4.0 S¢/share in FY11). We remain optimistic of Raffles Medical’s outlook, with growth drivers coming from its Specialist Centre @ Thong Sia and its hospital extension in FY14. We have tweaked our FY12 earnings estimate to S$55.9 (previously S$55.2m), as Raffles Medical revises its charges and patient volumes remain healthy. Our DCF-based TP has been raised slightly to S$2.72 (previously S$2.67). The stock has rallied 18% in recent weeks, on the impending listing of IHH Healthcare, and is now trading at a P/E of 25x FY12F earnings (vs historical PE band of 18x – 26x). Downgrade to NEUTRAL.
Room to raise fees and grow revenue. Besides hiring more staff, management also recently adjusted the salaries of its doctors, contributing to 19.1% YoY higher staff costs. As a result, 2Q12 EBIT margins were slightly lower at 19% (vs 21% in 2Q11). Management expects to be able to recover this cost, as it progressively raises its charges. Its price point is currently closer to what the public hospitals are charging, and ~20% below that of its competitors (historically ~10% lower), which gives Raffles Medical room to grow its revenue further.
Growth drivers expected from 2014. Once its 102,480 sq ft hospital extension and the Specialist Medical Centre fully come on stream (expected in FY14), Raffles Medical would be able to expand its range of healthcare services and further drive growth.
Strong balance sheet. Raffles Medical has a net cash balance of S$63.9m or 11.7 S¢/share as at 2Q12, helped by its stable cash flows from operations.
RafflesMed – DMG
Valuations appear rich
Raffles Medical achieved PATMI of S$12.4m for 2Q12 (+6.8% YoY), as revenue grew 14.9% YoY. The results were in line with expectations. Revenue growth was boosted by an increase in both patient volume and revenue intensity. Staff cost was higher as expected, as Raffles Medical hired more staff in preparation for operations at Thong Sia to begin in mid-2013. Management remains confident that it would be able to maintain its dividends (4.0 S¢/share in FY11). We remain optimistic of Raffles Medical’s outlook, with growth drivers coming from its Specialist Centre @ Thong Sia and its hospital extension in FY14. We have tweaked our FY12 earnings estimate to S$55.9 (previously S$55.2m), as Raffles Medical revises its charges and patient volumes remain healthy. Our DCF-based TP has been raised slightly to S$2.72 (previously S$2.67). The stock has rallied 18% in recent weeks, on the impending listing of IHH Healthcare, and is now trading at a P/E of 25x FY12F earnings (vs historical PE band of 18x – 26x). Downgrade to NEUTRAL.
Room to raise fees and grow revenue. Besides hiring more staff, management also recently adjusted the salaries of its doctors, contributing to 19.1% YoY higher staff costs. As a result, 2Q12 EBIT margins were slightly lower at 19% (vs 21% in 2Q11). Management expects to be able to recover this cost, as it progressively raises its charges. Its price point is currently closer to what the public hospitals are charging, and ~20% below that of its competitors (historically ~10% lower), which gives Raffles Medical room to grow its revenue further.
Growth drivers expected from 2014. Once its 102,480 sq ft hospital extension and the Specialist Medical Centre fully come on stream (expected in FY14), Raffles Medical would be able to expand its range of healthcare services and further drive growth.
Strong balance sheet. Raffles Medical has a net cash balance of S$63.9m or 11.7 S¢/share as at 2Q12, helped by its stable cash flows from operations.