SIAEC – Kim Eng
Holding Up Well with Stable Earnings
1QFY3/13 results in line. SIA Engineering (SIE) reported 1QFY3/13 NPATMI of SGD 70.1 m, making up 25% of our full year FY3/13 forecast. Although revenue improved 8.2% YoY to SGD 300.5 m, cost pressures contributed to a 0.9% drop in operating profit to SGD 34.4 m. JVs and Associates continued their significant contribution (~51% of PBT) to SIE’s bottomline, posting a 7.5% increase YoY.
Cost pressures and Margin concerns. In our previous note, we had highlighted our concerns of margin erosion and a delayed recovery in the aviation sector as key risks for SIE. These risk factors are still largely prevalent, with higher subcontract, staff and material costs being cited by SIE as main contributors to its 9.6% YoY increase in operating expenditure for 1QFY3/13.
Supported by positive MRO macro outlook. Amidst a possible delay in an aviation sector-wide recovery, the MRO segment remains relatively resilient, with a ~4% CAGR growth forecasted globally for the next 5 years. 1H2012 aircraft movement at Changi Airport has also maintained strong growth of 10.2% YoY, offering further growth support for SIE on a domestic front. SIE’s strong balance sheet with its net cash position of SGD 572 m and healthy cash-generating business (1QFY3/13 net cash inflow of +SGD 75.9 m) should continue to support a steady, growing dividend payout.
Within expectations, maintain HOLD. With SIE’s results in line with ours and consensus forecasts, we maintain our HOLD call, pegged to SIE’s historical PER average of 15.4x FY3/13 earnings. Existing investors keen on pure aviation engineering exposure can continue to enjoy SIE’s dividend yields in the 5-6% range. However, we reiterate our preference for ST Engineering in the aviation engineering sector, for its defense-backed contracts and strong orderbook which provides better earnings visibility.
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.
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.