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.
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.
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.
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.
SMRT – Maybank Kim Eng
Smaller bus loss gives cheer
- Bus operations posted sharp drop in loss but fare-based business still in the red. Fare hike implemented in April will ensure continued improvement in profitability.
- Earnings raised by 17-29% to reflect lower cost estimates.
- Maintain SELL with higher TP of SGD0.65.
What’s New
SMRT reported net profit of SGD16.9m for 4QFY3/14, marginally above our expectations. The boost came from its bus operations, which recorded a sharp reduction in operating loss to SGD4.4m (4QFY3/13: SGD11.9m) in what appeared to be better cost control. Net gearing rose to 60% (FY3/13: 8.2%) as CAPEX more than doubled to SGD652m (FY3/13: SGD251m). Overall, the fare-based business remained in the red for the quarter, chalking up operating loss of SGD3.7m. Full-year DPS was trimmed to 2.2 SGD cts (FY3/13: 2.5 SGD cts), translating to a payout of 54%.
What’s Our View
Following the fare hike last month, we expect SMRT’s fare-based business to continue to improve in the coming quarters. However, as highlighted in our earlier report (note), the estimated annual net benefit of SGD13.2m is insufficient to fully compensate for losses at its fare-based business (FY3/14: SGD25.0m). Therefore, a transition to a sustainable model is still badly needed. We have not factored this into our forecasts. The sharp decline in FY3/17E EPS reflects our expectations for traffic cannibalisation when Stage 2 of the Downtown Line (DTL) opens in 2016. Management will host an analyst briefing today and we expect the discussion to centre on the transition of its fare-based businesses. We raise our FY3/15E/16E/17E earnings forecasts by 28%/17%/29%, albeit off a low base, to reflect lower cost estimates. We reiterate our SELL call but raise our TP to SGD0.65 (from SGD0.60), based on 14x FY3/15E-17E P/E. In our view, it is speculative to conclude that the transition terms for the business model will be favourable.